2017 Estate Tax Summary

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The American Taxpayer Relief Act of 2012 made each person’s $5 million combined gift and estate tax exemption ‘permanent’, meaning the exemption has no expiration date and changing the exemption would require new legislation. The exemption is inflation-indexed and is now $5.49 million (up from $5.45 million in 2016). Here is a summary of current federal estate and gift tax law (Virginia currently has no estate or gift tax):

Gift Tax

  • Total lifetime gifts that exceed $5.49 million are taxed at a flat 40% rate.
  • In addition to the $5.49 million exemption, a $14,000 annual exclusion per donee is available. The $14,000 amount is unchanged from 2016 but it is inflation-indexed.
  • Gifts of any amount to your spouse (if he or she is a U.S. citizen), or to a qualified charity, are not subject to gift tax if the gifts are made outright or through a qualified trust.
  • Direct payments to qualified educational institutions or medical care providers on behalf of a beneficiary are not subject to gift tax.
  • Each person has one combined $5.49 million exemption from gift and estate taxes, meaning lifetime gifts that count against this exemption reduce the amount that can be passed free of estate tax at death.

Estate Tax

  • Each decedent can pass $5.49 million (less the value of any lifetime gifts that count against this exemption) free of estate tax, and amounts above this are taxed at a flat 40% rate.
  • Assets of any amount left to your surviving spouse (if he or she is a U.S. citizen) or to a qualified charity are exempt from estate tax at your death if the bequest is made outright or through a qualified trust.
  • ‘Portability’ allows a surviving spouse to carry forward any unused gift and estate tax exemption of the deceased spouse for use during the surviving spouse’s lifetime or when the surviving spouse dies, if the deceased spouse’s estate makes a portability election on a timely filed estate tax return.

Generation-Skipping Transfer (GST) Tax

  • The GST tax exemption is now $5.49 million per donor/decedent, and the GST tax applies at a maximum 40% rate to generation-skipping transfers not fully covered by the GST exemption.
  • Generally, a generation-skipping transfer is a lifetime gift or a transfer at death to a beneficiary who is two or more generations below the donor/decedent.
  • Outright gifts to a beneficiary up to $14,000 annually and direct payments of any amount to qualified educational institutions or medical care providers on behalf of a beneficiary are not subject to GST tax.
  • The GST tax is a federal tax in addition to any gift or estate tax.
  • A ‘portability’ election made on behalf of a deceased spouse’s estate does not transfer the deceased spouse’s unused GST tax exemption to the surviving spouse.