The estate tax parameters are subject to change, and over the years some of these changes have been significant. In other cases, relatively minor but notable adjustments are made.
When you maintain an ongoing relationship with your estate planning attorney, you can always be apprised of new developments as they take place so you will never be behind the curve. Estate planning is an ongoing process, and revisions are likely to be necessary as time goes on. Responsible people will want to be completely prepared every step of the way.
Estate Tax Credit or Exclusion
Back at the end of 2010, a legislative measure was passed that impacted the estate tax. This piece of legislation, now called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, called for a $5 million exclusion in 2011. It allowed for increases based on the rate of inflation annually.
The first increase brought the exclusion up to $5.12 million in 2012. Another increase was added for 2013. As a result, we have been working with a unified gift and estate tax credit of $5.25 million this year.
Since the end of the year is just over the horizon, people within the estate planning community have been wondering about the possibility of another increase for 2014. The speculation has now been put to rest. The Internal Revenue Service has taken action with regard to an inflation increase for 2014.
Next year the amount of the unified exclusion will go up by $90,000 to $5.34 million.
Unification of Gift and Estate Tax
To provide some clarity, the gift tax and the estate tax are unified. This $5.34 million exclusion covers the gifts that you give while you are living in addition to the value of your estate. There is just one unified exclusion.
This $5.34 million credit or exclusion that will be in place for 2014 is allotted to each and every taxpayer. As a result, you have a $5.34 million exclusion, and your spouse will have his or her own $5.34 million exclusion. As a couple you will have $10.68 million.
The estate tax exclusion has been portable since the aforementioned tax relief act was enacted. As a result, a surviving spouse can use the exclusion that was afforded to his or her deceased spouse. For more information on portability, see our blog from earlier this year Estate Tax Rate Increased for 2013.
When you are evaluating how you are going to utilize your unified exclusion, you should understand the fact that gifts and bequests to your spouse are completely exempt from taxation. You don’t have to use any of your exclusion to transfer assets to your spouse if you are legally married in the eyes of the federal government.
Because of the recent Supreme Court ruling involving the case of Edith Windsor and the Defense of Marriage Act, the unlimited marital deduction now does extend to same-sex couples who are legally married.