The federal estate tax is imposed on wealth that is being transferred that exceeds a particular amount. This threshold is called the estate tax exclusion. The amount of the exclusion has varied significantly over the years, so the current numbers we are going to share are subject to change.
In 2018, an $11.18 million estate tax exclusion was installed, and this base is still in place, but there are annual adjustments to account for inflation. In 2019, the amount of the estate tax exclusion has been $11.4 million, and next year it should be a bit higher when another adjustment is added.
This exclusion also applies to gifts that you give that are considered to be taxable by the Internal Revenue Service while you are still alive. We have a federal gift tax that is unified with the estate tax, and both taxes carry a 40 percent maximum rate.
So, if you give $11.4 million in tax-free gifts using the exclusion that has been allotted to you, any further taxable gifts and the entirety of your estate would be subject to the unified gift/estate tax.
Unlimited Marital Deduction
Now that we have set the stage appropriately, let’s look at the unlimited marital deduction for asset transfers between spouses. If you are legally married in the United States to an American citizen, you can bequeath unlimited property to your spouse free of taxation. You can also give large gifts to your spouse throughout your life free of the federal gift tax.
We should emphasize the fact that the unlimited marital deduction does not extend to your spouse if he or she is not a citizen of this country. This is because the surviving non-citizen spouse could take the inheritance back to his or her country of citizenship.
When this individual dies in that country, the United States Internal Revenue Service would have no recourse with regard to taxing the estate when it is distributed in that foreign jurisdiction.
While we are discussing how the federal estate tax impacts married couples, it is prudent to touch upon the matter of portability. Since 2011, the federal estate tax has been portable between spouses. This means that you could utilize the estate tax exclusion that your spouse was entitled to if he or she was to die before you do.
Using the figure that is in place in 2019, that would result in a total exclusion of $22.8 million that you could utilize to pass along assets to your heirs in a tax-free manner.
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We have offices in New York and Vermont. Though most of the states in the union do not impose state-level estate taxes, as luck would have it, both of these states do have their own death taxes.
The exclusions in New York and Vermont are lower than the federal exclusion, and other rules differ from the federal parameters. You should certainly discuss the details with an attorney from one of our offices so that you can take the appropriate steps to mitigate your exposure if necessary.
Of course, even if you do not have any estate tax concerns, we would be more than glad to gain an understanding of your objectives and help you devise a custom crafted estate plan.
You can set the wheels in motion right now if you give us a call at 802-879-7133 in Vermont, and our number in Albany, New York is 518-389-6020. We also have a contact form on this website that you can use to send us a message.