By Erica Fitzgerald, Esq., Littman Krooks LLP
The American Taxpayer Relief Act of 2012 (“ATRA”), enacted in January 2013, made changes to the laws governing Federal estate and gift taxes. Specifically, the Federal estate and gift tax exemption amount was set at $5,000,000, and provides for annual increases to account for inflation. As a result, as few as 1% of estates are expected to owe Federal taxes.
In 2015, the Federal estate and gift tax exemption is $5,430,000 for individuals, up from $5,340,000 in 2014. This means that individual estates valued at $5,430,000 or less will not be subject to Federal estate and gift taxes. The Federal lifetime gift exemption, which also increased to $5,430,000 in 2015, is tied to the estate tax. An individual can make gifts during his or her lifetime, but must file gift tax returns with the IRS. Specifically, an individual can give away up to $5,430,000 over the course of his entire life, over and above gifts which qualify for the annual Federal gift tax exclusion, without incurring Federal gift taxes. Dollar for dollar, however, the amount given away during the donor’s lifetime will reduce the amount that can be given away free from Federal estate taxes at the donor’s death. Individual estates whose value exceeds $5,430,000 are subject to a 40% Federal estate tax.
These two exemptions are not to be confused with the annual Federal gift tax exclusion, which will remain $14,000 in 2015. This annual exclusion allows an individual taxpayer to make gifts of up to $14,000 each to an unlimited number of recipients in a single year without having to file a Federal gift tax return on those gifts.
The Federal estate and gift tax exemptions currently available have shifted the focus of estate planning. Since most estates are now exempt from Federal estate and gift tax, estate planners focus on planning to minimize capital gains, income taxes, state estate taxes and creditor claims.
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