The federal estate tax exclusion is the amount that you can pass along to your heirs free of taxation.
In addition to the estate tax, we also have a federal gift tax. This tax exists to prevent people from giving lifetime gifts to avoid the estate tax. The exclusion is a unified exclusion that covers lifetime gift giving along with the estate that you are passing on to your heirs.
There is an unlimited marital transfer tax deduction. You can transfer unlimited assets to your spouse either while you are living or after you pass away free of transfer taxes. The exclusion is the amount that you can transfer to people other than your spouse in a tax-free manner.
There was a $5 million exclusion installed for the 2011 calendar year. This foundation has remained in place since then, but there have been ongoing annual adjustments to account for inflation. Throughout 2014, the unified exclusion has been $5.34 million.
The Internal Revenue Service recently released the amount of the 2015 federal transfer tax exclusion. In 2015, the exclusion will go up to $5.43 million.
Annual Gift Tax Exclusion
In addition to the unified lifetime exclusion, there is also an annual gift tax exclusion. This allows you to give a certain amount of money to gift recipients before the gift tax would be applicable.
The 2014 annual gift tax exclusion is $14,000 per person. You can give up to $14,000 to any number of gift recipients free of transfer taxes. If you wanted to give more than $14,000 to a gift recipient, you could use a portion of your unified exclusion to give the gift free of taxation.
This figure has been raised to account for inflation at times, but it would appear as though the $14,000 figure is going to remain in place throughout 2015.
Portability of Unified Exclusion
The $5.43 million exclusion that will be in place for 2015 is a per person exclusion. If you are married, you will have a $5.43 million exclusion, and your spouse will have his or her own $5.43 million exclusion.
The exclusion was made portable after a tax relief act was passed at the end of 2010. The American Taxpayer Relief Act of 2012 allowed for ongoing portability. In an estate planning context, the word portability is used to describe the ability of a surviving spouse to use the exclusion that was allotted to his or her deceased spouse.
As result of portability, a surviving spouse would have a total exclusion of $10.86 million in 2015.
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Mark S. Eghrari, Estate Planning Attorney
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