Estate planning should be viewed as an ongoing process. It is not a “one and done” affair. Things are always changing. Some of the changes take place within your own life. Others, such as changes to the estate tax parameters, affect the society as a whole.

Over the years there have been very significant changes to the estate tax exclusion and the rate of the tax. We have some stability now due to the passage of the American Taxpayer Relief Act of 2012.

Theoretically, the $5 million estate tax exclusion that was put into place for the 2011 calendar year is permanent, but there are ongoing annual adjustments to account for inflation. The point is to arrive at a figure each year that equates to $5 million in 2011 dollars.

2014 Gift and Estate Tax Exclusion Adjustment

Because of the fact that we can see the new year emerging over the horizon, the Internal Revenue Service has announced the estate tax exclusion adjustment for 2014.

This year we are working with a $5.25 million estate tax exclusion. Next year the exclusion is going up to $5.34 million.

You should understand the fact that this is a unified exclusion that encompasses gifts that you give while you are living along with the value of your estate. Yes, there is a gift tax in the United States as well as an estate tax. Both levies carry the same maximum rate of 40 percent.

No Changes to Annual Gift Tax Exclusion

There is an annual gift tax exclusion that is separate from the unified lifetime gift and estate tax exclusion. You can give gifts up to a certain amount per recipient each year before you would have to use any of your unified exclusion to give the gift in a tax-free manner.

Throughout 2013 the amount of this exclusion has been $14,000. It can be adjusted to account for the evolving cost-of-living.

Because of the fact that the unified exclusion amount was raised by $90,000, you may think that the annual exclusion would go up as well.

Unfortunately, this is not the case. There will be no increase in the amount of the annual per person gift tax exclusion in 2014. It is going to hold steady at $14,000 per person.

Portability of Unified Exclusion

The unified gift/estate tax exclusion is portable. Traditionally it was not portable, but it became portable in 2011 due to legislative mandate.

In an estate planning context, portability refers to the ability of a surviving spouse to utilize the exclusion that was afforded to his or her deceased spouse.

As a result of this portability feature, using next year’s $5.34 million individual exclusion, a surviving spouse would have a total gift and estate tax exclusion of $10.68 million.

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Ryan M. DenmanandDennis D. Duffy

Duffy Law Office, PLLC