Estate Tax Exclusion Adjusted for Inflation | Sacramento Estate Planning Attorney

The federal estate tax is controversial, because it is a tax that is imposed on assets that you have left after you paid taxes all of your life. Many people wonder why death should be a taxable event.

Whether it is fair or not, the tax is a fact of life, and you should be aware of the estate tax parameters so that you can take steps to gain estate tax efficiency if you are exposed.

Estate Tax Parameters

The estate tax is not a factor for most people, because there is a credit or exclusion. You can leave unlimited assets to your spouse tax-free (if your spouse is an American citizen) because there is an unlimited marital deduction, but asset transfers to others are potentially taxable.

For the 2011 calendar year the estate tax exclusion was set at $5 million via legislative mandate. The figure was adjusted in 2012 to account for inflation.

After the American Taxpayer Relief Act of 2012 was passed at the very end of that year, the base $5 million exclusion was retained, with ongoing annual adjustments to account for inflation.

Throughout 2014 we have had an exclusion of $5.34 million. Now that the year is almost over, the Internal Revenue Service has announced an inflation adjustment for 2015.

During the 2015 calendar year, the inflation-adjusted exclusion will be $5.43 million.

We should point out the fact that the $5.43 million exclusion is a unified exclusion. In addition to the estate tax, there is a gift tax, and the two taxes are unified, so the exclusion applies to taxable gifts that you give while you are living along with the value of your estate.

Annual Gift Tax Exclusion

In addition to the unified gift and estate tax exclusion, there is also an annual per person gift tax exclusion. You can give as much as $14,000 to any number of gift recipients within a calendar year before the gift tax would kick in. If you gave more than $14,000 to any one person, you could give the gift tax-free using a portion of your unified gift and estate tax exclusion.

The amount of this exclusion can also be increased to account for inflation. However, there will be no increase in 2015. The annual per person gift tax exclusion will remain constant at $14,000.

Schedule a Consultation

If you would like to discuss taxation or any other estate planning matter with an experienced and qualified estate planning attorney, we can help. Please call our office to set up an appointment.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.