Estate and Gift Taxes

Chronology of Federal Estate and Gift Tax Law Changes

2010 Estate and Gift Tax Law Changes: Congress made significant changes to the federal estate tax rules and rates in 2010. As a result in 2011 and 2012 individuals, over the course of their lifetimes, could give or bequeath $5,000,000 (indexed for inflation) to anyone free of a federal transfer tax. If the combined total of lifetime gifts and at-death bequests exceeded $5,000,000, the excess was taxed at a 35% rate. A married couple could utilize a $10,000,000 exemption under this 2010 law. This law was only in effect for 2011 and 2012. This law was supposed to “sunset” on January 1, 2013, with the result that only $1,000,000 could be passed tax-free with any excess over $1,000,000 to taxed at federal rates ranging from 41% to 60%.

Another benefit of the 2010 tax law was that a couple did not automatically “waste” the $5,000,000 tax-free amount allocated to each spouse if one spouse did not have $5,000,000 of assets titled in their name at the time of his or her death. As an example, assume a couple has a combined net worth of $10,000,000 consisting of $8,000,000 of assets owned by the husband and $2,000,000 of assets held by the wife. Under the 2010 law, if the wife died first and left her $2,000,000 to the children, the executor or personal representative of her estate could make an election to transfer her unused exemption of $3,000,000 to her husband for use at his death. If such an election was made, her husband would then be able to leave $8,000,000 estate tax-free by using his own exemption of $5,000,000 plus his deceased wife’s unused exemption of $3,000,000.

2013 Estate and Gift Tax Law Changes: All of the rules in the 2010 tax law were scheduled to end on January 1, 2013, unless Congress acted to extend or modify them. Therefore, on January 1, 2013, Congress passed a new law that kept the 2010 transfer tax provisions intact with some rate increases. This new law prevented steep increases in estate and gift taxes that were slated to occur for individuals dying and gifts made after 2012. It did so by permanently keeping the exemption levels at $5,000,000 (indexed for inflation). It also continued the portability feature that allows the estate of the first spouse to die to transfer his or her unused estate tax exclusion to the surviving spouse. However, this new Act also permanently increased the top estate and gift tax rates from 35% to 40%. All of the changes made by this new law are effective for individuals dying and gifts made after 2012. As a result of the inflation adjustment, the original $5,000,000 amount was increased to $5,250,000 for the 2013 tax year.

In addition to his or her $5,000,000 lifetime transfer tax exclusion (adjusted annually for inflation) an individual can also make gifts during their lifetime that qualify for the “annual gift tax exclusion.” The annual gift tax exclusion amount (which is also adjusted annually) is $14,000 for 2013. This means an individual can make as many gifts of up to $14,000 per person to any number of persons in 2013 without any federal gift tax consequences and without having to file a Gift Tax Return. To qualify for the annual exclusion the gift must essentially be a “no strings attached” gift. The annual exclusion is also available for gifts to pay medical and educational expenses.

View Legal Blog post for more information on the 2013 tax law changes.

2014 Estate and Gift Tax Law Changes:

  1. The estate and gift tax exclusion amouns were increased to $5,340,000
  2. The gift tax annual exclusion for gift taxes remains at the 2013 level of $14,000.

2015 Estate and Gift Tax Law Changes:

  1. The estate and gift tax exclusion amounts were increased to $5,430,000
  2. The gift tax annual exclusion for gift taxes remains at the 2013 level of $14,000.

2016 Estate and Gift Tax Law Changes:

  1. The estate and gift tax exclusion amounts were increased to $5,450,000.
  2. The annual exclusion for gift taxes remains at $14,000.

2017 Estate and Gift Tax Law Changes:

  1. The estate and gift tax exclusion amounts were increased to $5,490,000.
  2. The annual exclusion for gift taxes remains at $14,000.

2018 Estate and Gift Tax Law Changes:

  1. The estate and gift tax exclusion amounts were increased to $11,800,000.
  2. The annual exclusion for gift taxes has increased to at $15,000.

NOTE: Although many states impose taxes on lifetime gifts or at-death transfers, Arizona does not.

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