Wealth Management Update (November 2013)

Federal Exclusion from Gift, Estate and Generation-Skipping Transfer Taxes Increases to $5,340,000 in 2014

In Revenue Ruling 2013-35, the IRS announced certain inflation adjustments to tax exemptions and deductions. The IRS increased the basic exclusion amount for 2014 to $5,340,000 from $5,250,000. Decedent estates in 2014 will pay no federal estate tax if their taxable estate is under $5,340,000 and they did not use any of this exemption during their lifetime. Additionally, the basic exclusion amount is the amount that an individual may use to make tax-free gifts during his or her lifetime. Any exemption amounts used during life reduce the exemption amount available at death. Furthermore, the basic exclusion amount also determines the amount that may pass free of generation-skipping transfer taxes, which therefore also increases to $5,340,000.

The amount of the annual exclusion for gifts to U.S. citizens remains at $14,000 for 2014. This means that an individual may gift up to $14,000, per beneficiary, next year without reducing such individual's basic exclusion amount or being subject to gift tax. However, if the recipient of the gift is a spouse who is a non-U.S. citizen, the U.S. citizen spouse may gift up to $145,000 (increased from $143,000 this year) to the non-citizen spouse next year without including the amount in his or her taxable gifts...