Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

99.7% of Estates Are Not Subject to Federal Tax

The American Taxpayer Relief Act of 2012 (“Act”) increased tax exemptions for federal estates, gifting and generation skipping trusts (GST). The Act also escalated the aforesaid exemptions each year for inflation. Below is a summary of the 2015 status of the three exclusions along with the ceiling for the federal estate tax rate applicable to each exemption:

  • $5,430,000 federal estate tax exemption (increased from $5,340,000 in 2014) and a 40% top federal estate tax rate.
  • $5,430,000 GST tax exemption (increased from $5,340,000 in 2014) and a 40% top federal GST tax rate.
  • $5,430,000 lifetime gift tax exemption (increased from $5,340,000 in 2014) and a 40% top federal gift tax rate.

Many estate planners, accountants, wealth managers and other professionals who represent high net worth clients are taking advantage of the increased exemptions imposed by the Act to make larger lifetime gifts; to leverage more assets through a variety of estate planning techniques (such as a sale to a grantor trust); and to shift income producing assets to individuals such as children or grandchildren who may be in lower income tax brackets and/or reside in states with a low income tax rate or no state income tax.

As you would presume, only a handful of American taxpayers are able to benefit from these tax planning opportunities. For instance in 2012, the most recent year in which both Internal Revenue Service and national death statistics are available, approximately 2.543 million Americans passed away. Of that group, just 8,423 estates exceeded the $5.12 million threshold for estate exemptions that year. These figures indicate that 99.7% of decedents in 2012 were not subject to federal tax.

If you have significant wealth, it is well worth your time to sit down with your professional advisers this year to discuss estate planning techniques that might benefit you and your beneficiaries.

By Gary Ringel, Managing Director of Henry & Horne ’s Business Valuation & Litigation Support Services Group

Sources

March 2015 edition of Trust & Estates written by Robert F. Sharpe, Jr. titled “Making Gifts Sooner Than Later … Accelerating Charitable Bequests.”

Proskauer Rose LLP’s December 2014 newsletter titled “2015 Estate, Gift and GST Tax Update: What This Means for Your Current Will, Revocable Trust and Estate Plan.”