Beginning in 2017, the lifetime estate and gift tax exclusion (which is indexed for inflation) will rise to $5,490,000 from $5.45 Million during 2016. This is the limit on tax-free transfers during life or at death. This means that couples who have not yet made any lifetime gifts will be able to avoid estate taxes with a combined estate of $10,980,000 or less. Importantly, it may be necessary for a surviving spouse to file an estate tax return for their deceased spouse in order to take advantage of this combined exclusion amount.
The annual gift tax exclusion remains unchanged at $14,000, meaning that you can make a gift of $14,000 to as many people as you like without counting against your lifetime exclusion. Spouses can combine their annual exclusions to give a combined $28,000 to anyone they choose.
In addition to this annual tax exempt amount, taxpayers can make non-taxable gifts to pay for tuition, dental, and medical expenses for anyone they choose. However, the payments must be made directly to the provider of the service – they don’t count as non-taxable gifts if they are made as reimbursements.
If you have questions about how these rules may apply to you, please contact us and we’ll be glad to help.