Taxation is something that you constantly face throughout your life, but it can also come into play after you pass away. Many people question the fairness of the estate tax, because it is imposed on assets that you have left after paying many taxes along the way, but it is a fact of life whether it is fair or not.
Fortunately, most people don’t have to pay the estate tax, because there is an estate tax exclusion. You can pass along a certain amount before the tax would kick in, and this amount is the called the exclusion or credit.
We should point out the fact that there is an unlimited marital deduction. If you are married, you can transfer unlimited assets to your spouse free of taxation.
Transfers to others are potentially subject to the estate tax, so you would use the exclusion to facilitate tax-free transfers to anyone except your spouse.
Throughout 2014 the federal estate tax exclusion has been $5.34 million. This figure stems from a $5 million base that was put into place for 2011. Since then, there have been annual inflation adjustments.
This year is coming to a close, so the Internal Revenue Service has released the inflation adjustment that will be applied in 2015. Next year, the federal estate tax exclusion will be $5.43 million.
When you hear about the federal estate tax, you may decide that you will give gifts to your family while you are living to avoid the tax. This make sense, but it is not possible, because there is a federal gift tax in place.
The gift tax and the estate tax are unified, so the $5.43 million exclusion that we will see next year is a unified lifetime exclusion. It applies to the estate that you are passing on to your heirs, but it also applies to large gifts that you give while you are living.
We use the term “large” gifts because the first $14,000 that you give to any person during a calendar year would be exempt from the gift tax, because there is a $14,000 per person annual gift tax exclusion. This exclusion sits apart from the unified lifetime exclusion.
The amount of this annual gift tax exclusion is sometimes adjusted to account for inflation. However, according to reports, there will be no adjustment to this exclusion for 2015, so the $14,000 per person figure will remain in place.
Learn More About the Estate Tax
If you would like to obtain more detailed information about the federal estate tax, you can access a valuable resource through this website.
Our firm has prepared a special report that takes an in-depth look at the death tax, and it is being offered to our readers on a complimentary basis.
To access the free report, click this link: Estate Tax Report.