New Budget Would Impact Estate Tax Parameters

Mar 14, 2014

There is a compelling article appearing on the Forbes website that breaks down the 2015 budget proposal that has been presented by the White House. This new budget contains provisions that would impact the federal estate tax parameters.

Federal Estate Tax Credit or Exclusion

To determine whether or not you have estate tax liability you compare the value of your estate to the amount of the federal estate tax credit or exclusion. If your assets do not exceed this exclusion, your estate would not be subject to the estate tax.

At the present time the amount of the exclusion is $5.34 million. There is a base of $5 million that was put into place for the 2011 calendar year, and there have been ongoing adjustments to account for inflation ever since.

The proposed 2015 budget that has been released by the White House would reduce the amount of this exclusion. Under the terms of the proposal, on January 1, 2018, the federal estate tax exclusion would be reduced to $3.5 million.

This would expose many more Americans to the death tax. In addition to this, people who are already in taxable territory would face added exposure.

Rate Hike

The budget proposal includes a change to the maximum rate of the federal estate tax, the gift tax, and the generation-skipping transfer tax. When the exclusion goes down to $3.5 million at the beginning of 2018 the top rate would rise to 45 percent; the maximum rate of the federal transfer taxes at the present time is 40 percent.

Gift Tax Exclusion Reduced

The $5.34 million exclusion that we have in 2014 is a unified exclusion that covers gifts that you give while you are living along with the value of your estate. You could use the entirety of this exclusion giving tax-free gifts throughout your life if this was your choice.

Under the terms of the 2015 budget proposal, the gift tax exclusion would be reduced to just $1 million in 2018.

Wealth Preservation Strategies Targeted

In addition to the above changes, the proposed budget includes changes to the laws that would make certain wealth preservation strategies less effective. In addition to this, it would completely eliminate dynasty trusts. These trusts are available in a handful of states at the present time.

Communicate With Your Attorney

We would like to emphasize the fact that these changes are being proposed. They are not facts of life, and they will meet with a great deal of resistance when budget negotiations begin in earnest.

However, this situation demonstrates why you should develop an ongoing relationship with your estate planning attorney. Your original estate plan is not set in stone. Tax laws can and do change, and you should be prepared to adjust your estate plan when and if it becomes necessary.

We are grateful you follow us and value your comments and input.  You Can Also Find Us Online: Facebook | Twitter | LinkedIn Thanks again.

Ryan M. Denman and Dennis D. Duffy

Duffy Law Office, PLLC



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