News

New limits for the estate tax exemption and a look ahead

The IRS recently announced the estate and gift tax exemption for 2016; it has been set at $5.45 million for individuals and $10.9 million for couples. (The estate tax exemptions for the current tax year are $5.43 million and $10.86 million respectively. The slight rise reflects the very low inflation rate for 2015.) With a limit of $14,000 per gift, the annual gift tax exclusion will remain the same.

So should you care about these numbers? Well, right now probably not if your estate is worth much less than the exemption and you aren’t expecting a financial windfall. But with the presidential election only a year away, the limits will increasingly be part of the national debate and, looking down the road, they could change.

Republicans, for the most part, want to kill the estate tax. Earlier this year, the House voted largely along party lines to repeal it. According to Congress’ Joint Committee on Taxation, this would cost the IRS $14.6 billion in 2016 and $269 billion over the next ten years.

Among the candidates for the Republican nomination, Donald Trump has long been advocating for the demise of the estate tax, and Florida Senator Marco Rubio in June signed a pledge to repeal it. Though only a small portion of small businesses and family-owned farms owe the estate tax (20 in 2013, according to the Tax Policy Center) Rubio sees it as devastating to these kinds of enterprises.

On the Democratic side, Hillary Clinton hasn’t yet presented a tax plan. But Vermont Senator Bernie Sanders wants to lower the estate tax exemption to $3.5 million. (Just for comparison: The limit was down at $2 million in 2008, and at $1 million in 2003.) Sanders has also suggested increasing the top estate tax rate from the current 40 percent to 65 percent. Under his plan, the portion of estates that owe the IRS because their value exceeds the tax free limit would increase only slightly, from two, to three out of every 1,000 estates.

What does this mean for you? Hard to say, because no one knows which policies Washington will implement starting in 2017, after the elections. But estate planning, per definition, always deals with uncertainties. And, no matter what your circumstances are, an experienced attorney can help you prepare for whatever may come.

By Kevin J. Moore