November 2, 2016

Estate Tax in 2017

An annual occurrence for the IRS the past couple of falls has been to announce an increase in the estate tax threshold, or the applicable exclusion amount in tax parlance.  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 2017.

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2010                   Repealed                      0%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%  

2017                   $5.49M                        40%                

The applicable exclusion amount for 2017 represents a $40,000 increase from 2016.

Married couples who are U.S. citizens can take advantage of martial deduction trusts or portability to shield up to $10.98M from the estate tax.

The above limit for 2017 pertains to decedents who pass away in 2017. 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, 2016, the exclusion amount for 2016 would apply, not 2017. 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.