Since the end of the year is right around the corner, government agencies are releasing updated figures for 2016 that are relevant to people who are concerned about elder law and estate planning issues. Recently, the Internal Revenue Service released the amount of the inflation adjustment that will be applied to the federal estate tax exclusion.
The exclusion is the amount that you can transfer before the estate tax would be applied. There is an unlimited marital deduction that you can use to transfer unlimited assets to your spouse tax-free, but transfers to others are potentially taxable.
For the 2010 calendar year, there was no estate tax at all, because it was repealed for that one year due to provisions that were contained within the Bush era tax cuts. The estate tax was scheduled to return in 2011 with a $1 million exclusion.
At the end of 2010, a piece of legislation that is now called The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was enacted. This measure set the estate tax exclusion at $5 million for 2011 and 2012, and the maximum rate was set at 35 percent.
An inflation adjustment was applied for 2012 that made the exact amount of the exclusion $5.12 million. At the end of that year, another tax bill was passed called the American Taxpayer Relief Act of 2012. This made the inflation-adjusted $5 million exclusion permanent, but the maximum rate of the tax was raised to 40 percent. Considering the fact that the measure is called a “tax relief act,” this was somewhat confusing to many people.
In 2013, the exclusion was $5.25 million, and in 2014, it was $5.34 million. Throughout 2015, the exclusion has been $5.43 million.
The inflation adjustment for 2016 is going to be significantly less than these previous adjustments. Next year, the federal estate tax exclusion will only go up by $20,000 to $5.45 million.
We should point out the fact that there is a gift tax that is in place to stop people from giving gifts to avoid the estate tax. The gift tax and the estate tax are unified, so the exclusion is a unified exclusion that applies to your estate and any large lifetime gifts that you give.
Free Estate Tax Report
The existence of the estate tax can be quite disconcerting if you have been very successful from a financial standpoint. However, there are things that you can do to ease the burden if your estate is in taxable territory.
If you would like to learn more about the estate tax and the tax efficiency strategies that exist, download our in-depth special report on the subject. This report will provide you with a great deal of very useful information, and we are offering the report on a complimentary basis at the present time.
To get your copy of the report, click this link and follow the simple instructions: Estate Tax Report.
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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