Trick or Treat: Estate Tax Exemption to Increase

Just in time for Halloween, the Internal Revenue Service has announced that the exemption from the federal estate tax will increase to $5,430,000, effective January 1, 2015.  Pursuant to the Fair Tax Act of 2013, this exemption, known as the applicable exclusion amount, is adjusted for inflation on an annual basis.  Initially set at $5,250,000 in 2013, it increased to $5,340,000 for the current year.

In light to the change, upon the death of each individual, there will be an exemption of $5,430,000 from federal estate tax.  For married couples who utilize either proper trust planning or portability, or a combination of both, the amount of $10,860,000 can be excluded from the federal death tax.

The annual exclusion amount for gifts per person remains at $14,000.   This amount only adjusts in increments of $1,000, and is only adjusted when aggregate inflation over a period of years warrants as much.  Still, it is important to remember that the exclusion from federal estate tax is a unified credit with the gift tax which allows for part or all of this exclusion to be used during lifetime as well as upon death.

As to New Jersey, there appears to be no change on the horizon.  Every year there are promises to adjust or eliminate its inheritance tax and/or estate tax system.  However, as each year passes, we wake up like in the movie “Groundhog’s Day” to find that nothing has changed.  The inheritance tax structure has been in place for decades and the NJ estate tax, with its stingy $675,000 exemption, has not been adjusted since 2002.  Perhaps, one of these years, it will be.


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