The IRS has released the annual inflation adjustment amounts and tax rate schedules that will apply in 2017. Included are the new gift and estate tax exclusion amounts for 2017. The new inflation adjusted numbers are available in Revenue Procedure 2016-55. They apply generally to transactions or events occurring in calendar year 2017.
Estate and Gift Tax Exclusion amounts for 2017
$5.49 million - Federal Estate Tax Basic Exclusion Amount
$5.49 million - Lifetime Gift Tax Exclusion
$14,000 - Annual Gift Tax Exclusion
The new estate and lifetime gift tax exclusion amounts are an increase of $40,000 from 2016. Because a husband and wife each get their own exemption, a married couple can give away $10,980,000 million tax-free in 2017 (provided they have not previously used up any of their exclusions.)
The top tax rate on amounts above the exemption limit is 40%. The high exemption amounts have pretty much done away with estate tax as an estate planning consideration for most people.
The current estate tax regime may see dramatic legislative change next year. President-Elect Trump and House Speaker Paul Ryan have both proposed ending the estate tax.
But Donald Trump would add a new tax on the appreciation in value of assets owned by a decedent at death. There would be a $5 million exemption for single filers and a $10 million exemption for married couples filing jointly. It is not clear whether this new capital gains tax would be imposed at the time of death of the decedent or only at a later date when the decedent’s beneficiaries sell the appreciated property.
While doing away with the federal estate tax, the House Republicans’ Plan would leave in place the current “step-up” in basis adjustment for most appreciated assets at the death of the owner.
It’s too soon at this point to know what will eventually happen. Advisers are generally suggesting that clients who might be impacted by the estate tax keep their current estate plans in place for now. One exception might to be to revisit any plan that involves paying gift tax currently.