The IRS has finally released information on federal estate and gift tax exemptions for 2017.
Individuals will have a federal estate tax exemption of $5.49 million (less lifetime taxable gifts) beginning in 2017. The federal estate tax exemption applies both to lifetime taxable gifts (those exceeding the annual exclusion amount discussed below) and gifts at death — either outright or in trust. So, an individual who makes lifetime taxable gifts of $1.0 million, would only be able to leave an additional $4.49 million free of federal estate tax at death. If his or her estate exceeded $4.49 million, then the amount above the federal estate tax exemption would be taxed at 40%.
Couples are able to shelter a total of $10.98 million ($5.49 million each), and various mechanisms exist to make sure that each spouse can fully utilize his or her own federal estate tax exemption and/or his or her predeceased spouse’s unused estate tax exemption.
Individuals may also make annual gifts of up to $14,000 per donee per year, and a married couple can jointly give any one person $28,000 ($14,000 from each spouse). Individuals wishing to make significant gifts to children or grandchildren also have the ability to pre-fund 5 years of annual exclusion gifts ($14,000 x 5 = $70,000) when funding Section 529 Accounts for such beneficiary, but doing so uses up annual exclusion gifts for the current year and 4 years thereafter. In many cases, the benefit of receiving 5 years of additional appreciation on the growth may be well worth taking advantage of this exception for clients financially able to make large gifts.
Finally, individuals may make certain gifts on an unlimited basis for certain qualified transfers. Those transfers are set out in Internal Revenue Code Section 2503(e) and include tuition paid directly to an educational organization described in Code Section 170 and payments directly to medical providers. The Section 2503(e) exemption does not apply to gifts made to the individual receiving the education or medical services, and payments must be made directly to the providers.