Colorado Probate Blog - Wade Ash Woods Hill & Farley, P.C.

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Year-End Tax Planning

Annual Exclusion Gifts. The gift tax annual exclusion is $14,000 for 2016, and stays the same for 2017. You can make gifts of this amount to each of any number of people in a calendar year and not have to file a gift tax return, and the gifts will not use up part of your estate tax exemption. You can also make gifts of an unlimited amount by directly paying a donee's medical expenses to the provider, or tuition to the educational institution. If you make the gift by a check, the donee must deposit the check and the amount must clear your account prior to the end of the year.

Charitable Gifts. Unlike gifts to individuals, charitable gifts made by check are considered made in 2016 so long as the check is mailed or delivered to the charity prior to the end of the year; it does not have to clear your account. You can also make a larger gift to a donor advised fund this year, and then to look ahead and consider individual charities and the amounts you wish to give next year.

Larger Gifts and Estate Tax Exemption. The gift and estate tax exemption is $5,450,000 for 2016 and $5,490,000 for 2017. Even if you had used up your exemption in prior years, because the exemption is indexed for inflation, it has increased each year. You may have additional gift tax exemption available.

Year-End Trust Distributions. An irrevocable trust that is not a "grantor trust" is taxed at the highest rate at only $12,400 in taxable income (for 2016). If taxable income is carried out to the beneficiaries in distributions, then that income may be taxed to the individuals at lower rates. Distributions up to 65 days after the end of the calendar year may be made that will carry out 2016 distributable net income. Deductible expenses must be paid by the trust prior to the end of the calendar year.

IRA Minimum Required Distributions. If you have already reached age 70-1/2, you must take your Minimum Required Distribution (MRD) from your IRAs and qualified plans prior to the end of the year. In addition, anyone who has received an Inherited IRA due to the death of the prior owner must start taking MRDs in the year following death. MRDs from Inherited IRAs are not postponed until age 70-1/2. Also keep in mind that assets in your Inherited IRA may not have the same creditor protection as your own IRA.

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