The federal estate tax is not a factor for everyone, because there is a credit or exclusion. This is the amount that can be transferred before the estate tax would be applied. For a number of years, this figure was moving around quite a bit, but there has been some consistency since 2011.
To provide some background information, during the 2010 calendar year, the estate tax was repealed entirely. This one year repeal was contained within the Bush era tax cuts.
Under the laws as they existed in 2010, the estate tax was scheduled to reappear in 2011 with an exclusion of just $1 million. Toward the end of the year, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was passed. This changed the lay of the land with regard to the estate tax parameters.
Provisions contained within this act set the estate tax exclusion at $5 million with ongoing annual adjustments to account for inflation. A 35 percent top rate was also installed.
This piece of legislation was only passed for two years, so it was going to expire at the end of 2012. Once again, if no new legislation was passed, the exclusion was going to go down to $1 million in 2013. This situation was averted when another legislative measure was passed that is now being called the American Taxpayer Relief Act of 2012.
Though it is called a taxpayer relief act, the act actually raised the maximum rate of the federal estate tax exclusion from 35 percent to 40 percent. When it comes to the exclusion, the inflation-adjusted $5 million figure that was put into place for 2011 was retained.
This arrangement is permanent in the sense that there is no particular expiration date. However, changes could always be implemented through legislative actions.
There have been inflation adjustments each year since 2011, and the lowest adjustment has been $90,000. After a series of inflation adjustments, the exclusion has been $5.43 million throughout 2015, and the IRS has now announced the inflation adjustment for 2016.
Next year, $20,000 will be added to bring the estate tax exclusion up to $5.45 million.
when you are evaluating your level of estate tax exposure, you have to include real property that you own, and life insurance proceeds count as well. It is possible to be exposed to the estate tax even if you never considered yourself to be among the financial elite.
Fortunately, there are steps that you can take to ease the burden if your estate is in taxable territory. The ideal wealth preservation strategy will vary depending on the circumstances.
If you would like to discuss your unique personal situation with a licensed professional, our firm would be glad to assist you. To set up a consultation, send us a message through this page: Grand Forks ND Estate Planning Attorneys.