05 January 2015

Estate Planning Outlook: 2015

The American Taxpayer Relief Act of 2012 (the “Tax Act”) made important changes to the federal estate tax, generational skipping tax and gift tax rules.  These included (1) the reunification of the estate and gift tax regimes, (2) the $5 million estate, gift and generation-skipping transfer (“GST”) tax exemptions, as increased for inflation, and (3) the concept of portability for the federal estate tax.

These Tax Act provisions remain unchanged for 2015. The inflation adjusted amounts are as follows:

  • The federal estate tax exemption is $5,430,000 (increased from $5,340,000 in 2014) and a 40% top federal estate tax rate.
  • The GST tax exemption is also $5,430,000 (increased from $5,340,000 in 2014) and a 40% top federal GST tax rate.
  • The lifetime gift tax exemption is $5,430,000 (increased from $5,340,000 in 2014) and a 40% top federal gift tax rate.
  • The marital annual gift tax exclusion for gifts to a noncitizen spouse is $147,000 (increased from $145,000 in 2014).
  • The annual exclusion for federal gift tax purposes is $14,000 (no increase from 2014).

The increasing exemptions for federal gift and GST tax and availability of the gift tax annual exclusion provide continued planning opportunities to pass wealth to future generations with less exposure to tax.  Advanced estate planning techniques and early planning can help leverage available exemptions to accomplish family objectives. Additionally, techniques can help “freeze” the value of the assets being transferred to prevent future appreciation from being included in the donor’s taxable estate. For clients with assets below the exemption amounts, more opportunities may be available for planning to maximize savings on income and capital gains taxes.

For married couples, the concept of “portability” is emerging as an essential planning consideration.  “Portability” allows a surviving spouse to make an election to save the deceased spouse’s unused estate and gift tax exemption to shelter future gifts by the surviving spouse.  Portability is NOT automatic.  The surviving spouse must file an estate tax return within nine months after the death of a spouse to make the election.  Some couples who previously used a separate trust for each spouse may benefit from converting to a joint trust.  While planning with portability may be appropriate under the right circumstances, relying on it can present several risks. Your Miller Johnson estate planning expert can conduct a “health check” of your estate plan and help determine whether portability should be or continue to be incorporated into your overall plan.

If you have any questions about this client alert or your estate plan in general, please contact any member of the Miller Johnson Trusts, Estates and Elder Law Practice Group.