Federal Estate Tax Exemption: Is It Permanent and Will the Exemption Continue to Rise Every Year?

Nearly every family that we speak with will have questions about taxes, death taxes, and inheritance taxes. Usually, the families that we speak with have concerns that they do not want their children’s inheritance to be reduced by unnecessary taxes at death. However, there is good news in this regard. The federal estate taxes, under the American Taxpayer Relief Act, will only apply to approximately 1% of estate. In addition, the Tennessee Inheritance Tax will be completely abolished and go away effective January 1, 2016. However, what about those who are worried about reducing their federal estate tax liability?

When the American Taxpayer Relief Act was passed in 2012, the federal estate and gift tax was made permanent. In addition, the Act provided that a federal estate tax would only be assessed on estates with a gross value of more than $5 million. Also, indexed for inflation, this exemption continues to rise and currently stands at $5.43 million in 2015. However, the Act also provided for portability of the unused estate tax exemption. Essentially, the unused estate tax exemption of the first spouse to die could be transferred to the surviving spouse. Therefore, a surviving spouse could technically have an estate worth $10.86 million exempt from the federal estate tax.

However, for families with large estates, there is a worry on whether the exemption on the federal estate tax will continue to rise and be indexed for inflation in the future. In 2012, prior to the passing of the American Taxpayer Relief Act, the exemption returned to 2001 levels with a $675,000 exemption. Therefore, the question is whether this Act truly is permanent?

Although, nothing is certain, especially with Congress, the American Taxpayer Relief Act made the federal estate and gift tax, the estate tax exemption, and portability of the unused estate tax exemption permanent. However, is it possible for Congress to pass new tax laws in the future and completely change the current federal estate and gift tax regime? That certainly is possible and could occur in the future. However, at the present time, the federal estate tax will only apply to gross taxable estates above $5.43 million, or $10.86 million for estates that fully utilize portability.

However, because tax law can be uncertain, it is important to work with an estate planning law firm that continuously stays on top of current estate planning trends, law changes, and emerging topics, as well as informs you when the law has changed with a possible effect on your existing estate planning strategy. In addition, you should work with an estate planning law firm that provides this level of service for a reasonable fixed cost.

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