Federal Estate and Gift Tax Update

The 2014 unified gift and estate tax exemption is set at $5.34 million per person. For married couples, a surviving spouse can tack onto his or her $5.34 million exemption the unused exclusion amount of a previously deceased spouse (known as “portability”). In addition, the IRS recognizes an unlimited marital deduction for assets that pass between spouses. Effectively, it is possible for a married couple to transfer $10.68 million of marital assets free of the federal gift and estate tax. When the unified gift and estate tax exemption was lower, many estate plans centered on an “A-B Trust” that creates two sub-trusts for tax avoidance. Most married couples may no longer need to divide their assets and fund separate revocable trusts to minimize federal estate taxes and instead could benefit from a simplified estate plan.

In 2014 the annual gift tax exclusion amount is $14,000 per donee ($28,000 for married couples). This allows individuals to gift $14,000 annually to any number of individuals free of the federal gift tax. While the IRS does not tax gifts under $14,000, for purposes of Medicaid, any gift made during the “five-year look back” period will result in a penalty period for the Medicaid applicant. (See Article on Medicaid Planning Basics below).