Home > Estate Planning, Tax > Federal Estate and Gift Tax Law Update / February 2014

Federal Estate and Gift Tax Law Update / February 2014

2014 ESTATE AND GIFT UPDATE (posted 2/14/2014)

The laws changed since my last blog on this topic.  The following are the major estate and gift tax laws and changes made in 2014:

1.   The Estate, gift and GST tax (generation skipping tax) applicable exclusion amount increased from $5.25 million in 2013 to $5.34 million in 2014.  This means that a married couple can now transfer a combined $10.68 million tax free and without federal estate, gift and GST tax.

2.  The Estate, gift and GST tax is 40%.

3.  The annual gift tax exclusion amount is $14,000 per donee.

4.  Portability of the federal exclustion amount is now permanent which means the unused exclusion of the first deceased spouse can be used by the surviving spouse at death.  However, GST and state exclusions are NOT portable.

5.  The gift tax exclusion to a non-citizen spouse increased to $145,000.  Gifts between spouses are unlimited if the donee spouse is a United States citizen, however, there are restrictions when the donee spouse is not a United States citizen.

By: Nadine M. Catalfimo, Esq.

On February 13, 2012, the United States Department of Treasury released the Treasury Greenbook which sets forth Obama’s revenue proposals for the fiscal year 2013. The link to the report can be found at: www.treasury.gov/resouce-center/taxpolicy/pages/general_explanation.aspx.

The report provides a nice synopsis of the proposed changes to the estate, GST and gift tax laws, including portability. The following information is found on Pages 75-76 of the report (but pages 82-83 of the PDF document):



Until the end of 2012, the current estate, generation-skipping transfer, and gift tax rate is 35 percent, and each individual has a lifetime exclusion for all three types of taxes of $5 million (indexed after 2011 for inflation from 2010). The surviving spouse of a person who dies after December 31, 2010, may be eligible to increase the surviving spouse’s exclusion amount by the portion of the predeceased spouse’s exclusion that remained unused at the predeceased spouse’s death (in other words, the exclusion is “portable”). However, after 2012, the tax rate and tax brackets, the amount of the exclusion, and the law governing these three types of taxes will revert to the law in effect in 2001, as if the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) had never been enacted. Portability of the exemption between spouses for both gift and estate tax purposes, enacted as part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA), also will no longer apply.
Prior to the enactment of EGTRRA in 2001, the maximum tax rate was 55 percent, plus a 5-percent surcharge on the amount of the taxable estate between approximately $10 million and $17.2 million (designed to recapture the benefit of the lower rate brackets). The exclusion for estate and gift tax purposes was $675,000 and was scheduled to increase to $1 million by 2006. Under EGTRRA, beginning in 2002, the top tax rate for all three types of taxes was reduced incrementally until it was 45 percent in 2007. In 2004, the exemption for estate taxes (but not for gift taxes) began to increase incrementally until it was $3.5 million in 2009, and the generation-skipping transfer (GST) tax exemption and rate became unified with the estate tax exemption and rate. During this post¬ EGTRRA period through 2009, the gift tax exemption remained $1 million. Under EGTRRA, for 2010, the estate tax was replaced with carryover basis treatment of bequests, the GST tax was not applicable, and the gift tax remained in effect with a $1 million exclusion and a 35-percent tax rate. The EGTRRA provisions were scheduled to expire at the end of 2010, meaning that the estate tax and GST tax would be inapplicable for only one year.
In 2010, TRUIRJCA retroactively changed applicable law for 2010 by providing a top estate tax rate of 35 percent for taxpayers electing estate tax rather than carryover-basis treatment. It also retroactively reinstated the GST tax and unified the exemption for estate, GST, and gift taxes beginning in 2011 with a $5 million total lifetime exclusion for all three taxes (indexed after 2011 for inflation from 2010). The Administration’s FY 2013 baseline assumes that the estate tax provisions in effect in 2012 are permanent.
TRUIRJCA provided a substantial tax cut to the most affluent taxpayers that we cannot afford to continue. We need a permanent estate tax law that provides certainty to taxpayers, is fair, and raises an appropriate amount of revenue.”

Whether the above proposal will be changed or passed by December 31, 2012, is another update! Nadine can be contacted at ncatalfimo@MA-NHEstateLaw.com.

Categories: Estate Planning, Tax
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