Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

2016 FEDERAL ESTATE AND GIFT TAX LIMITS (PROJECTED)


It is estimated that on January 1, 2016, the federal estate and gift tax exemption will rise to $5.45 million (up from $5.43 million).  This would allow a married couple to shield $10.9 million from federal estate taxes. With the top federal estate tax rate at 40%, this number is important to individuals who try to decrease the size of their estates and avoid the tax. Over the years, the exemption amount has risen from $675,000 in 2001, $1.0 million in 2003, $2.0 million in 2008, until it was set at $5 million in 2011, and indexed for inflation.

It is important to note that the gift tax is tied to the estate tax, so the inflation indexing helps individuals make the most of tax-free lifetime giving too.  This increase in the exemption amount will allow an individual, who previously made a $5 million gift to their children to provide them with an additional $450,000. 

Separate and distinct from the federal estate and gift tax exemption is the annual gift tax exclusion amount. In 2016, it is projected to remain at $14,000 (the same as 2014-2015). The annual gift tax exclusion allows individuals to gift the sum of $14,000 to as many individuals as they desire without any gift tax consequences.  A husband and wife can make a joint gift of $28,000. It is important to consider the federal kiddie tax when making gifts to young individuals and students through the age of 23, since the young individual pays no tax on the first $1,050 of unearned income and then a 15% rate on the next $1,000. Investment income, above these small amounts, will then be taxed at the parent’s tax bracket.