November 19, 2015

Estate Tax in 2016

An annual occurrence for the IRS the past couple of falls has been to announce an increase in the estate tax threshold.  When the estate tax was re-instituted a couple of years ago, it became pegged to inflation. Thus, in periods of inflation, the estate tax would rise as well.

Recently this announcement was made by the IRS. Below is an overview of the federal estate tax exclusion amount since 2001 and includes the recently announced exclusion amount for 2016.

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2010                   Repealed                      0%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%

2015                   $5.43M                        40% 

2016                   $5.45M                        40%  

The applicable exclusion amount for 2016 represents a $20,000 increase from 2015.

Married couples who are U.S. citizens can take advantage of martial deduction trusts or portability to shield up to $10.9M from the estate tax.

The above limit for 2016 pertains to decedents who pass away in 2016. You cannot pick which year you want to apply to your estate. Sorry. Thus, if the decedent passed away at 11:59pm on December 31, 2015, the exclusion amount for 2015 would apply, not 2016. A decedent's death certificate will invariably list their date of death.

To be clear, the above represents the federal estate tax. A state is free to impose or not impose it owns estate tax regime. For example, the State of New York has a separate estate tax whereas the State of California does not.    

You can read the IRS' announcement here. There are also other tax announcements in the notice.