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In 2014 the federal estate tax will continue to affect only the richest families in America. Under legislation passed by Congress in 2013 about 99.5% of all estates will not owe any federal gift/estate tax.  Because most estate plans currently in existence don’t take the recent dramatic changes to the law and taxation into account, it is important that you have your current estate plan reviewed to make sure it is taking advantage of these changes.  If you have not prepared a comprehensive estate plan, you should in order to ensure that your estate will be distributed to your beneficiaries as you have planned.  Please call for an appointment.

Tax Rates for 2014:

The exemption amount is indexed for inflation each year, and in 2014 will be $5.34 million.  Unlike legislation enacted in recent years, there is no “sunset” provision under the law enacted in 2013.  Once indexed for inflation, the law will remain in force unless Congress acts to change the law again.

For those relatively large estates which remain subject to the tax, the gift/estate rate is 40%.  This is also the rate applicable to what is known as the generation-skipping transfer tax (GST”). The GST is a federal tax that is imposed on large transfers made by those who seek to skip a generation to avoid taxes.  For instance, a gift from a grandparent to a grandchild, which “skips” the grandchild’s parent.


A significant feature of the current estate tax law allows a married couple to combine their estate tax exemptions.  During lifetime or at death a couple may transfer more than $10 million to their beneficiaries free of estate taxes. This feature is called “portability.”  Under the portability provisions, if the first  to die doesn’t use all of his or her individual gift/estate tax exemption, the survivor may use what’s left of the decedent’s exemption. This effectively gives a married couple an exemption double the individual exemption. The couple may share their total exemption amount in the way that provides the greatest tax benefit.

For example, if each partner has $4 million in assets and the first to die leaves everything to the survivor no estate tax is owed.  This is because property left to a spouse is tax-free under the so called “Marital Exemption.”  When the survivor dies and leaves $8 million ($4 million plus the $4 million inherited from the other spouse) to the next generation no estate tax will be due, even though the combined estates are over the individual exemption amount.  In other words, the survivor’s estate gets to “carry over” and use the first spouse’s unused exemption.

Note, however, that in order to take advantage of the portability rule a federal  estate tax return on IRS form 706 must be filed within nine months of  the first spouse’s death – even if no tax is due on that first death.  As a result, the IRS must process returns that don’t provide any tax revenue, and taxpayers must pay for preparation of those returns.  However, the benefit of portability for those with substantial estates will likely outweigh the additional cost on the first death. To take advantage of this feature your estate must be  properly drafted.

In summary, there is continued good news on the estate and gift tax front for most Americans, and valuable planning possibilities for those fortunate enough to have an estate subject to wealth transfer taxes.  Please call us with any questions.