The IRS has announced the inflation adjustments for 2017 for important estate planning and income tax thresholds. Here are some of the key adjustments that affect estate plans:
The estate and gift tax exclusion amount will increase to $5,490,000.
The generation skipping tax exemption also increases to $5,490,000.
The gift tax annual exclusion amount stays at $14,000.
The annual exclusion for gifts to a non-citizen spouse increases to $149,000.
Special use valuation under Section 2023A: decrease cannot exceed $1,120,000.
Marginal tax rates for taxable income of estates and trusts:
Not over $2,550 15% of taxable income
$2,550-$6,000 $382.50 plus 25% of excess over $2,550
$6,000-$9,150 $1,245 plus 28% of excess over $6,000
$9,150-$12,500 $2,127 plus 33% of excess over $9,150
Over $12,500 $3,232.50 plus 39.6% of excess over $12,500
As you can see, some rates are indexed to inflation and others are not. For more detailed information, visit the IRS website, IRS.gov. The effect of enacted tax reform legislation will undoubtedly change some or perhaps all of these figures. Stay tuned.
Nine states are making estate tax changes for 2017. Altogether, eighteen states plus the District of Columbia impose either estate or inheritance taxes or both. They are Oregon, Washington state, Minnesota, Illinois, New Jersey, New York, Vermont, Hawaii, Kentucky, Nebraska, Iowa, Maryland, Pennsylvania, Connecticut, Massachusetts, Maine, Rhode Island, and Delaware.
As an example, New Jersey has had a long time $675,000 exemption from the state estate tax but now it will be $2 million dollars. Similar changes are in effect for the other states. Because the federal estate tax exemption amount is indexed to inflation, it rose from $5.45 million dollars for 2016 to $5.49 million dollars in 2017. So, for a married couple the exemption amount is a little shy of $11 million dollars.
How much money you can leave to your heirs free of state tax levies depends on where you live and own property, whom you’re leaving your money to, and whether your estate planning is up to date. Any doubt about this, please see an estate planning attorney for assistance.
Estate or Inheritance Taxes
For 2016, the estate and gift tax exemption is $5.45 million per individual. What does this mean? Each person must have an estate in excess of almost five and a half million dollars before any federal tax kicks in. That means an individual can leave $5.45 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield $10.9 million from federal estate and gift taxes. Good news! Our state of Arizona has no estate tax whatsoever.
What about gift giving? Well, for 2016 the annual gift exclusion remains $14,000. Again, this is the federal government — Arizona does not have a gift tax at all. The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead.
What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following are not taxable gifts:
•Gifts that are not more than the annual exclusion for the calendar year.
•Tuition or medical expenses you pay for someone (the educational and medical exclusions).
•Gifts to your spouse.
•Gifts to a political organization for its use.
In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.