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IRS announces 2016 Estate of Gift Tax limits: The $10.9 million tax Break.

It’s been made official for 2016, the estate and gift tax exemption is $5.45 million per individual, that is up from $5.43 million in 2015.

This means an individual can leave $5.45 million to heirs and pay no federal estate or gift tax. A married couple will be able to shield $10.9 million from federal estate or gift taxes. The annual gift exclusion remains the same at $14,000.00.

The federal estate and gift tax exemptions rise with inflation. The inflation bump up matters to wealthy clients who try to whittle down their estates to keep below the threshold, which was as low as $2 million in 2008, $1 million in 2003 and $675,000.00 in 2001. The estate and gift tax exemption amount was set at $5 million, indexed for inflation. The top federal estate tax rate is 40%.

The federal gift tax is tied to the estate tax, so the inflation indexing helps your wealthy clients make the most of tax-free lifetime giving. Your clients may make the gifts during their lifetime, however they have to keep track of them as they count against the eventual estate tax exemption amount. For example if someone set up a trust with $5 million a few years ago, they could add to the trust and bring the amount up to the $5.45 million amount.

The rules for couples can be complex. A husband and wife can each get their own exemption, meaning a couple will be able to give away $10.9 million tax-free in 2016 (assuming they haven’t made any lifetime gifts), but it’s not automatic. An unlimited marital deduction allows them to leave all or part of their assets to their surviving spouse free of federal estate tax. But to use your late spouse’s unused exemption – a move called “portability,” you have to elect it on the federal estate tax return of the first spouse to die – even if no tax is due.

On another note, On December 17, 2015 the Senate Judiciary Committee passed Assembly Bill No. 2915 (1R), revising the State’s existing laws concerning trusts. The bill known as “the Uniform Trust Code” has an effective date of July 17, 2016. N.J.S.A. 3:B has been supplemented to add Chapter 31 and has supplemented and repealed additional sections. A further analysis of the Code will be reviewed at a later date. 

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