In the United States we have a federal estate tax. There is a federal estate tax credit or exclusion. Only the portion of your estate that exceeds the credit or exclusion would be taxable. If your estate’s value does not exceed this amount, your estate would not be subject to the federal estate tax.
How much is the amount of the federal estate tax exclusion? In 2013 this amount is $5.25 million. It is subject to annual adjustments to account for inflation.
The Internal Revenue Service has announced that the amount of the federal estate tax exclusion will go up to $5.34 million in 2014.
This is a per person exclusion. Everyone has a $5.34 million exclusion to utilize in 2014, including people who are married. As a result, a married couple would have a combination of $10.68 million to bequeath tax-free before the estate tax would become a factor.
The estate tax exclusion is portable, so you could use your spouse’s exclusion if he or she was to predecease you in addition to your own.
Leaving Assets to Spouse Tax-Free
When you are considering how you want to use your available estate tax exclusion, you should understand the fact that there is an unlimited marital deduction. What this means is that you can leave any amount of money or property to your spouse in a tax-free manner.
This exclusion is available to American citizens. If you happen to be married to someone who is not a citizen of the United States, the unlimited marital deduction would not be afforded to your family.
In the state of Connecticut there is a state estate tax. As a result, people here in Connecticut have to contend with two different estate taxes. There is an unlimited marital deduction on the federal level as we have explained. There is also an unlimited marital deduction on the state level.
A very important and influential case was recently resolved by the federal Supreme Court involving a woman named Edith Windsor and the Defensive of Marriage Act. Terms of the Defense of Marriage Act define marriage as something that can only exist between a man and a woman.
As a result, the unlimited marital deduction on the federal level was not afforded to people who were engaged in same-sex marriages that were legally sanctioned in jurisdictions that allowed them. Windsor, a New Yorker, was married to a woman named Thea Spyer in Canada. After Spyer passed away, Windsor had to pay estate taxes.
The Supreme Court found that portions of the Defense of Marriage Act were indeed unconstitutional. As a result, the federal government must now recognize same-sex marriages when it comes to the unlimited marital estate tax deduction.
It is now available to couples of the same sex who are legally married.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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