
Of note, the ATRA is subject to amendment or repeal, but such would require an act of Congress and Presidential approval. Previously the estate tax needed re-authorization periodically because the law lacked the required number of votes to make the baseline amount permanent. This changed when the ATRA received enough votes to make it permanent in the U.S. Senate. This was welcome news to attorneys and clients because the estate tax is no longer, presumably, a moving target that is subject to the whimsical nature of politics.
Since the estate tax was pegged to inflation, the IRS has recently released the inflation adjusted figure for 2014. For decedents who pass away in the year 2014, the applicable exclusion amount will be $5.34M. In plain terms this means that if a decedent passes away in 2014 and their estate is equal to or less than $5.34M, no estate tax will be due.
The decedent's estate includes basically any asset wherever located. In other words, pretty much everything you own, regardless of location, is valued for estate tax purposes. However, few estates are actually affected by the federal estate tax given that the applicable exclusion amount is quite large. Still, this post is only dedicated to the federal estate tax and each state is free to impose their own estate tax. For example, you may be reading this article and be domiciled in New York state (hat tip: Google Analytics), which does impose an estate tax. For reference, California does not impose an estate tax.
Year Amount Excluded Maximum Tax Rate
2001 $675,000 55%
2002 $1M 50%
2003 $1M 49%
2004 $1M 48%
2005 $1M 47%
2006 $2M 46%
2007 $2M 45%
2008 $2M 45%
2009 $3.5M 45%
2010 Repealed 0%
2011 $5M 35%
2012 $5.12M 35%
2013 $5.25M 40%
2014 $5.34M 40%
Also of note is the fact that the annual exclusion amount for gift taxes will continue to be $14,000 for 2014 per the same IRS memorandum. This is the same figure that is used for 2013.
In plain English, this $14,000 figure represents the maximum amount a person can gift to another person in the 2014 calendar year without having to deal with gift tax liability. This total does not include payment of tuition, payment of medical expenses, charitable donations and gifts between spouses as those are considered exempt gifts.