Critter Corner: Gift and Estate Tax Exclusion Amounts for 2017

Dear Angel,

I noticed you sent out the new key elder law numbers last week, but I did not see anything about gift and estate tax exclusion amounts for 2017. What are the new gift and estate tax exclusion numbers for 2017, and how do they compare to the current ones?

S. “Tate” Taxx

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Dear Tate,

For 2017, the estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016. That means an individual can leave $5.49 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield $10.98 million from federal estate and gift taxes.

How does this compare to previous years? Under the provisions of the American Taxpayer Relief Act of 2012, the lifetime gift and estate tax exemption increased from $5,120,000 in 2012 to $5,250,000 in 2013 and the tax rate increased to 40%. In 2014 and future years, the exemption amount continued to be indexed for inflation and the tax rate remained at 40%. The 2014 lifetime gift and estate tax exemption as indexed for inflation was $5,340,000, the 2015 lifetime gift and estate tax exemption was $5,430,000 (an increase of $90,000), the 2016 lifetime gift and estate tax  exemption is $5,450,000 per individual (an increase of $20,000), and the 2017 lifetime gift and estate tax exemption is $5,490,000 per individual (an increase of $40,000).

In 2017, you can still gift up to $14,000 per person, per year, without filing a federal gift tax return. These gifts are referred to as annual exclusion gifts and are not subject to the federal gift tax at all and therefore do not use any of your lifetime exemption from gift or estate taxes. If you give more than $14,000 to a single person in 2017, than the amount over $14,000 is reportable (for informational purposes only) on a a Federal Gift Tax Return, but the giver of such gifts will never actually owe any gift tax because unless the giver gives away more than his or her lifetime gift tax / estate tax exclusion of $5.49 million.

The annual exclusion amount is indexed for inflation but can only increase in $1,000 increments. Therefore, the 2017 annual gift tax exclusion remains at $14,000. However, always beware of making lifetime gifts if you are over the age of 65 —read the Medicaid: The Perils of Gifting FAQ webpage on our website for more details.

For spouses, there is an unlimited deduction from estate and gift tax that postpones the tax on assets inherited from each other until the second spouse dies. Married couples can combine their annual exclusion gifts and gift up to $28,000 per person, per year, but “split gifts” must be reported to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

The new inflation adjusted numbers are available in Revenue Procedure 2015-53.

Hope this is helpful!

Angel