Federal Gift and Estate Tax

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Federal Gift and Estate Tax

The federal estate tax affects wealthy American families. With the passing of the American Taxpayer Relief Act of 2013, there is an exemption of the first $5 million dollars transferred with inflation adjustments every year.

For a bit of background information, the tax exemption prior to this was only $1 million.

Exemption Amounts

As of 2015, each person may leave a $5.43 million estate without owing any taxes. Essentially, 99.5% of the population will not be affected and will not have to pay a federal inheritance tax.

Portability of Spouses

A popular feature of the Relief Act is the portability of the taxes. Together, spouses may gift away a combined $11.86 million estate, which is the twice the exemption, to their children. 

The way it works is that the decedent spouse may gift his share of the estate to the surviving spouse. This gives the surviving spouse double the exemption amount. Also, if the decedent spouse does not use up his full allocation of $5.43 million, then the surviving spouse may use it.

To fully take an advantage of the portability, the surviving spouse must file an estate tax within 9 months of the decedent’s death. Additionally, the spouse may file for a 6-month extension and pay the penalty for delayed filing.

Tax Rate

The current gift tax rate is 40 percent. Moreover, this tax rate also applies to generation-skipping transfers (i.e. from grandparent to grandchild).

Consulting an Attorney

Please consult an estate attorney to prepare your estate transfers. Any misfiling or delays will cost you a lot of money and you would not be able to take advantage of the portability aspect of the Relief Act.

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Last Modified: 06-23-2015 03:56 PM PDT

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