Estate and Gift Taxes in 2017

The amount exempt from the federal estate tax goes up to $5.49 million per decedent on January 1, 2017, an adjustment for 2016 inflation. The lifetime federal gift tax exemption is also $5.49 million. Married couples have two exemptions, so they can shield $10.98 million from transfer taxes. However, in the minority of states that continue to have estate and/or inheritance taxes, the amounts exempt are generally much lower.

The federal gift tax annual exclusion continues to be $14,000. No adjustment will be made to this threshold until the accumulated inflation pushes it to $15,000. Married couples who split their gifts (that is, treat a gift by one as made equally from both of them) may give $28,000 to each of as many persons they wish, without putting a dent in their $10.98 million combined lifetime gift tax exemption.

However, there is a real question concerning how much longer the federal estate and gift taxes will stay on the books. A majority of Republicans as well as many Democrats are on the record as favoring the end of these complicated taxes, as the revenue they raise is not significant in the federal budget. Some have defended these transfer taxes as a barrier to the accumulation of dynastic wealth, but history suggests they have not succeeded in meeting that objective to date.

President-elect Trump included elimination of the federal estate and gift tax in his tax reform proposals during the campaign. This is likely to be a lower priority than reformation of the corporate tax, which has a far greater impact on economic growth. Still, if the tax-reform train pulls out of the station in the spring, modification of estate and gift taxes is likely to be one of the cars.

Even if the taxes are repealed, however, that won’t mean the end of planning for “death taxes.” It appears likely that in place of the estate tax we could see a return of carryover basis, as happened in 2010 (the year the estate tax was optional). Alternatively, unrealized capital gains might be subjected to a capital gains tax at death, as is already done in Canada.

© 2016 M.A. Co.  All rights reserved.

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