Estate and Gift Tax Related Exemptions to Increase in 2015

The Internal Revenue Service (“IRS”) recently issued Revenue Procedure 2014-61, whereby the 2015 inflation adjustments to the (i) estate and gift tax, (ii) generation-skipping transfer tax exemption, (iii) gift tax annual exclusion, and (iv) marital deduction for gifts to non-U.S. spouses were announced.

Estate Tax Exemption Increases

Estate and Gift Tax Exemption. The American Taxpayer Relief Act of 2012 (“Act”) was passed by Congress on New Year’s Day in 2013. The Act, for relevant purposes, fixed the exemptions for both the (i) estate and gift tax and (ii) generation-skipping transfer tax at $5,250,000 for 2013. Further, the Act made these exemptions permanent with an inflation index for future years. For 2014, these exemptions were increased to $5,340,000 per the inflation adjustment. In other words, in 2014, each individual can transfer a total amount of $5,340,000 ($10,680,000 per married couple) before gift or estate taxes become due (which bear a top tax rate of 40%). For 2015, this amount will increase to $5,430,000 per person, which represents a $90,000, or 1.7%, increase.

Annual Exclusion. For 2014, the first $14,000 of gifts to any person (other than future interest gifts) are excluded from the total amount of taxable gifts considered made to that person.  This exclusion, commonly referred to as the annual exclusion, has not been increased for 2015.

Marital Deduction for Gifts to Non-U.S. Spouses. There is no limit to the amount a taxpayer can transfer to a U.S. spouse either during life or at death. However, this unlimited marital deduction does not apply to donee spouses who are non-U.S. citizens. For 2014, only the first $145,000 of gifts to a spouse who is not a U.S. citizen are excluded from the total amount of taxable gifts considered made to that person. For 2015, this amount will increase to $147,000, or by 1.4%.

The table below summarizes the changes to the aforementioned exemptions/exclusions over the previous five years:

  2011 2012 2013 2014 2015
Annual Exemption $13,000 $13,000 $14,000 $14,000 $14,000
Gift/Estate Tax Exemption $5.00M $5.12M $5.25M $5.34M $5.43M
GST Tax Exemption $5.00M $5.12M $5.25M $5.34M $5.43M
Non-U.S. Spouse Marital Deduction $136,000 $139,000 $143,000 $145,000 $147,000

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

 

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