For 2016 the estate and gift tax exemption has increased to $5.45 million per individual and $10.9 million for married couples. Here is the official IRS announcement for the new numbers, which rise with inflation. An article on Forbes.com explained some important things to know about the federal estate and gift tax exemption. The major points to keep in mind are as follows:
• The federal gift tax and estate tax are tied together so although you can make gifts during your lifetime, you must keep track of these gifts as they count against the eventual estate tax exemption amount.
• Married couples need to pay special attention to “portability” (More information here). In order to use your deceased spouse’s exemption, you have to elect it on the estate tax return of the first spouse to die, even when no tax is due. New York State does not allow portability.
• There is an annual gift tax exclusion amount that is completely separate from the lifetime gift exemption amount. The amount for the annual gift exemption amount is $14,000. Under this rule, $14,000 can be gifted to as many individuals as you would like, and does not count toward the lifetime gift exemption.
• When gifting, there is another tax to be mindful of that covers students through the age of 23. This federal tax puts investment income exceeding certain amounts into the parent’s tax bracket. For 2016, there is no tax on the first $1,050 of unearned income and a 10% rate on the next $1,050.
• Medical, dental, and tuition expenses paid directly to the provider do not count toward ANY of these tax limits.
• In addition, the New York estate tax is increasing over one million dollars to $4,187,500 for decedents dying after April 1, 2016.