The federal estate tax is a factor on asset transfers that exceed the amount of the federal estate tax exemption or exclusion. At the present time, the taxable portion would be subject to a death tax with a maximum rate of 40 percent.
Back at the end of 2010, a piece of legislation that is called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was passed, but it had a two-year lifespan. Provisions contained within this act set the estate tax exclusion at $5 million in 2011, and it allowed for an inflation adjustment in 2012. During that year, the adjusted estate tax exclusion was $5.12 million.
Under laws that existed at that time, the estate tax exclusion was going to go down to just $1 million in 2013 after the expiration of this legislative measure. This was part of the so-called “fiscal cliff” scenario that you may recall.
At the very end of the year, this scenario was averted through the enactment of the American Taxpayer Relief Act of 2012. Among other things, this act made the $5 million inflation-adjusted estate tax exclusion permanent.
There have been a series of adjustments each year since then, and in 2016, the exclusion is $5.45 million. This represents a $20,000 increase over the $5.43 million exclusion that we had in 2015.
The tax act that was passed at the end of 2010 made the exclusion portable between spouses, and portability was made permanent via provisions contained within the American Taxpayer Relief Act of 2012. This allows a surviving spouse to use the exclusion that his or her spouse was entitled to, so a surviving spouse would be able to use two exclusions.
In addition to the federal estate tax, there is also a gift tax. This tax exists to stop people from giving gifts to avoid the estate tax. The gift tax is unified with the estate tax, so the exclusion is a unified exclusion. It applies to gifts that you give while you are living along with the estate that will be transferred to your heirs after you are gone.
Vermont State Estate Tax
Fourteen states in the union and the District of Columbia impose state-level estate taxes. We practice in the state of Vermont, and there is a state-level estate tax to contend with in our state.
Your estate can be subject to the Vermont estate tax even if it is exempt on the federal level, because the state-level exclusion is lower than the federal exclusion. The Vermont state estate tax exclusion sits at $2.75 million at the present time.
Schedule a Consultation
If your estate is going to be subject to death taxes on the federal level, the state level, or both, you have to be proactive about the implementation of tax efficiency strategies. There are a number of different steps that you can take to preserve your legacy for the benefit of your loved ones.
The ideal tax efficiency strategy will depend upon the circumstances, so personalized attention is very important. If you would like to discuss your unique situation with a licensed professional, contact us through this link to set up a consultation: Essex Junction, VT Estate Planning Attorneys.