How rich do you have to be to think about Estate Taxes?

If you are fortunate enough to have a taxable estate ($11.4 million in 2019) you may want to consider transferring wealth to minimize your estate taxes.

The good news is that most affluent folks don't need to do fancy stuff; they can give away enough assets using the annual gift tax exclusion. Anyone can give $15,000 a year in cash, stock or property to any other person, without worrying about federal or state transfer taxes. For example, a husband and wife can give their two grown children, and their kids' spouses, $96,000 a year in the aggregate. If you pay someone's tuition or medical bills and send the check directly to the school or health provider, it doesn't eat into the $15,000 exclusion.

What if you want to transfer a bigger chunk at once? You also get a single lifetime gift tax exclusion of $5 million which, when used, reduces dollar for dollar the amount you can pass to heirs free of federal estate tax.

Deciding which assets to give away can be tricky. Under current law an asset passed on at your death gets a "step-up" in value to what it is worth at that time. That means your heirs can sell it right away without owing capital gains tax. On the other hand, when you give an asset during your life, the recipient takes on your basis in it, or its current market value, whichever is lower. That means you can't transfer an unrealized loss and usually shouldn't be giving away property that's worth less than you paid for it. If your estate is likely to be taxable, then you want to give assets with growth potential to get that growth out of your estate.