With the new year approaching, the Internal Revenue Service has announced an increase in the estate tax exclusion for 2015. To help you understand the path that led to this increase, we will take a brief walk down memory lane.
There is an unlimited marital deduction that allows you to leave any amount of money to your spouse free of taxation. The estate tax exclusion is the amount that you can transfer to people other than your spouse tax-free.
There was a repeal of the estate tax in 2010, and at the end of that year, a legislative measure set the estate tax exclusion at $5 million for 2011.
There was an inflation adjustment for 2012 that increased the exclusion to $5.12 million. At the end of 2012, the American Taxpayer Relief Act of 2012 made the base $5 million exclusion with annual inflation adjustments permanent.
In 2013, an adjustment upped the exclusion to $5.25 million, and it has been $5.34 million throughout 2014.
Now, the IRS has applied another inflation adjustments that will raise the estate tax exclusion to $5.43 million in 2015.
Federal Gift Tax
In addition to the federal estate tax, there is also a federal gift tax. Back in 1916 when the estate tax was first enacted, there was no gift tax, and people gave gifts while they were living to avoid the estate tax. This is why the gift tax was put into place.
In 1976, the gift tax was unified with the estate tax. As a result of this unification, the $5.43 million exclusion that we will see in 2015 applies to taxable gifts that you give while you are living along with the value of the estate that you are passing on to your heirs.
Portability of Estate Tax Exclusion
We should point out the fact that the estate tax exclusion is portable between spouses. In an estate planning context, portability describes the right of a surviving spouse to use the exclusion that was afforded to his or her deceased spouse.
After this inflation adjustment, a surviving spouse would have a total exclusion of $10.86 million to utilize in 2015.
Estate Tax Efficiency Strategies
Given the 40 percent maximum rate, the federal estate tax can significantly erode the wealth that you are passing along to your loved ones. Fortunately, there are estate tax efficiency strategies that can be implemented to mitigate your exposure.
The optimal course of action will vary on a case-by-case basis, so personalized attention is key.
If you would like to discuss your unique situation with a licensed professional, our firm is there for you. We provide free consultations to people in our area, and we would be glad to help you devise a strategy that minimizes your estate tax exposure.
To set up an appointment, send us a message through this page: Moline IL Estate Planning Attorneys.
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