Trusts, Estates, Exemptions and Taxes
It may be hard to believe that in 2001, the estate and gift tax exemption, also known as the unified credit, was a mere $675K.
In 2016 that credit is anticipated to go up to $5.45M for single filers; potentially $10.9M for married couples. This year, the exemption is $5.43M per individual.
These are projected figures from Thomson Reuters Checkpoint, and are based on the Consumer Price Index. The Internal Revenue Service will release official figures later this year, but the projections are probably on point, since U.S. Tax Code requires periodic adjustment for inflation.
Below the Threshold
Though not a huge increase (basic exclusion amounts rose by $120K in 2012, $130K in 2013 and $90K in 2014 and 2015) high net worth individuals and couples are reminded to review their tax planning to insure they are taking advantage of the exemptions properly and looking into other tools to keep the taxable portions of their estate as low as possible.
The GST, or Generation-Skipping Transfer Tax exemption should also rise to $5.45M next year, and the gift tax annual exclusion will remain at $14K. Remember: Filers may gift $14K to as many individuals as they like without reducing their lifetime gift exemption, in addition to making lifetime gifts that are reportable and do apply to their exemption.
Additional payments may be made for health or education expenses, and will be treated as excluded gifts so long as the payments are made directly to the provider.
Married Couples and Portability
Combined exemptions for married couples can get a little complicated.
Portability should be elected on the estate tax return of the first spouse to die, even if there are no estate taxes owed. If the deceased spouse has not used his or her entire lifetime gift or estate tax exemption, the surviving spouse can “port” the remaining exemption so that it is added to his or her exemption.
All assets passing to a surviving spouse (who is a US citizen) are estate tax-free.