The federal lifetime estate tax exemption will increase modestly next year. Effective January 1, 2016, the exemption will be $5,450,000 per person (an increase of $20,000 from 2015). This means that you are able to pass to your family - whether during your lifetime or through your estate after you have passed, or a combination of both - a total of $5.45 million, free of any estate tax. Once you pass the $5.45 million cap, the unified federal gift and estate tax kicks in. The tax rate will hold at 40% for anything in excess of the cap.
Married couples would be able to pass twice that amount, $10.9 million. But be warned: that's not automatic. The surviving spouse must take steps to take advantage of the deceased spouse's unused exemption. See my prior post on portability.
The annual gift tax exclusion will remain unchanged in 2016. As much as $14,000 may be given to any one individual, to as many individuals as you wish, without affecting your $5.45 million lifetime exemption. Married couples can double that amount. You are not limited to $14,000 if you want to pay for someone's medical expenses or tuition, however. So long as you write the check directly to the medical or educational provider, there is no maximum amount.
Keep in mind that many states, such as New York, New Jersey and Maryland, still impose an estate tax on residents.
In some cases those state taxes kick in at a lower level than the federal estate tax. For an interactive map from Forbes showing the states' 2015 estate taxes, click here.
Beyond 2016, who knows? Some presidential candidates have made their views clear, some not. Not surprisingly, billionaire Donald Trump favors repealing the estate tax entirely, as does Jeb Bush. Bernie Sanders would knock it back down to $3.5 million. Stay tuned.
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