Federal Estate Taxes for 2014

In 2013, Congress and President Obama passed the American Taxpayer Relief Act making the laws governing federal estate taxes, gift taxes, and generation-skipping transfer taxes permanent for 2013 and beyond (adjusting for inflation for the years after 2011). 

The IRS recently released the inflation adjustments for 2014,  increasing several federal gift tax annual exclusion amounts and the lifetime gift, estate and generation skipping tax exemption totals. For 2014, the lifetime exclusion from federal gift or estate taxes increases from $5,250,000 to $5,340,000 per person. This means that if a person passes away in 2014 and their estate is equal to or less than $5,340,000, their estate does not have to pay federal estate taxes (considering he or she did not make any gifts during his or her lifetime).  But use of any portion of this exclusion amount during one's life reduces the total availability for giving at death.  Each state may still impose their own estate tax. California, however, is one of the states that does not impose an estate tax. 

The chart below reflects how the federal estate tax has increased since 2010. 

Year                               Amount Excluded                     Maximum Tax Rate    
2010                                  Repealed                                            N/A
2011                                 $5,000,000                                           35%
2012                                 $5,120,000                                           35%
2013                                 $5,250,000                                           40%
2014                                 $5,340,000                                           40%

Additionally, the annual gift tax exclusion will remain the same at $14,000 per donor per donee.  This means that each year, a person can gift to another person the maximum amount of $14,000 without any gift tax liability. A married couple can gift up to double that amount. Some exempt gifts include medical expenses, payment of tuition, charitable donations and gifts between spouses.

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