Federal estate tax exemption 2021It's a new year, and that means there are new estate tax exemption and gift tax exclusion amounts for 2021. After today's video, you'll know what these numbers are and what they could mean to your estate plan.
Every year, I update this video with the new numbers, and this year, with a new president and a new Congress, people have been calling us more than usual wanting to know this year's numbers and what exactly they are and how it can affect them. In 2021, the gift exclusion amount remains at $15,000, just like last year.
The federal estate tax exclusion amount increased this year from 11,580,000 to $11.7 million for an individual. That's crazy, guys. What does this mean for you and the currently 40% federal estate tax? First, let's start with the federal estate tax exemption amount. For 2021, it increased, like I just said, to $11.7 million per person.
The 40% federal estate tax applies to the amount of your estate over the $11.7 million, usually. This is significant because, only a few years ago, it was around $5 million, and I can even remember when he was in the $3 million range. Remember, the $11.7 million is per person. If you're a married couple, you could potentially exclude $23.4 million from the 40% estate tax.
Now that $23.4 million exemption is not automatic for a married couple. A surviving spouse must elect to use their deceased spouse's unused exemption or, in IRS terms, they must elect, they have to physically elect, portability. So always consult with your CPA before doing anything like this, especially if you're over those amounts.
I know what you're thinking, $23.4 million? I don't even have a million dollars. And you know what, you're absolutely correct, these numbers are astronomical dollar amounts, and they only affect a very, very small percentage of United States taxpayers. I think it's less than like 0.5%. That is less than half a percent of the United States.
However, the $15,000 gift tax is more relevant to most people, and probably to you. The $15,000 annual gift tax exclusion means that you can give someone, anyone, up to $15,000 annually, tax free. Now, what's cool is that this is per person, and married couples can really take advantage of this. A married couple can give someone, anyone, up to $30,000 annually tax free, $15,000 from the husband and $15,000 from a wife. That means, potentially, you and your spouse could give each one of your kids up to $30,000 tax free every year. As an example, if you have three kids, that's $90,000 that you can give away every year tax free.
If you have children who are just starting out in life or they just got married, then the gift tax exclusion amount might be a great way to help them with a down payment to buy a house or even to help them pay for a wedding. And it's a great way to help them jumpstart their own retirement, right? These monetary gifts are not limited to just your kids. The $15,000 gift tax exclusion applies to anyone. You can give anyone you want $15,000 a year tax free. As always, check with your CPA or your tax professional, first, before you make these gifts because they do need to be tracked against the lifetime gift and estate tax exemption amounts.
These numbers are great. Unfortunately, if you live in some states that still have a state tax, you might still have to pay a significant amount of death tax without proper estate planning. In Oklahoma, we're lucky because we don't have to worry about estate tax anymore, at least Oklahoma estate tax, and that's because, several years ago, the state of Oklahoma, the legislature, abolished the estate tax.
However, there is still some uncertainty out there because the federal estate tax exemption is scheduled to sunset unless Congress acts before 2025 to update these exemptions. And of course, every time there's a new president and a new Congress, everyone, including us estate planning attorneys, try to figure out what will happen, and the truth is, we really don't know.
Tomorrow, I'll discuss about what the new president has been talking about during his transition. There's always talk about the federal estate tax exemption being reduced back to $16 million or even the $3 million range. Like I said, the truth is, nobody knows what will happen. It still has to go through Congress. There still has to be a lot of debate and compromise.
I asked Google how many Americans are out there that have around $3 million, and the average answer was about 4.4% of the United States population. That means that, if we do somehow go backwards and the federal estate tax exemption is actually reduced to the $3 million range, it still will not have any effect on almost 95% of Americans here in the United States.
This all goes back to what you've heard me say in almost all of my videos. Estate plans are living documents that must change as your life changes, and that's why you should meet with your estate planning attorney at least once a year. I know I've thrown a lot at you today, so that's why we've prepared our free guide on estate planning. I'll put a link to it in the description below and in the comment section below that, so that you can download it and get started in the right direction. And to help you out even more, watch this video up here and this video up here. If you enjoyed this video, then, guys, please smash that subscribe button and click on the like button and also click on that little bell, so you'll get notified every time we post a new video. Have a great day and an awesome week, and as always, thanks for watching.
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Cortes Law Firm
5801 Broadway Extension Hwy Suite 110
Oklahoma City, OK, 73118405-213-0856