By law, every year the IRS must determine exemption limits for federal estate tax and the lifetime gift tax based on inflation. And every year, estate planning attorneys wait to hear the IRS' announcement of what the exemptions will be for the coming year.
For 2015, the exemptions were set at $5.43 million for a single person and $10.86 million for a married couple. The exemptions for 2016 have been raised to $5.45 million for a single person and $10.9 million for a married couple.
It is important to note that the gift tax exemption is the total amount of gifts that may be made during a person's lifetime. The amount that may be given to any individual in a single year in 2016 will remain the same as it is in 2015 at $14,000.
Forbes reported on this announcement in "IRS Announces 2016 Estate and Gift Tax Limits: The $10.9 Million Tax Break."
To take advantage of these exemptions you will want to speak with qualified attorneys and accountants to make sure all paperwork is filed properly.
For example, the higher exemption only applies to married people if a surviving spouse files correctly when his or her spouse passes away. There are also certain gifts that do not count against the limits if properly made, including gifts for medical and educational expenses if made directly to the provider.
Thus if your spouse passes away or you’re considering giving someone a sizable gift, consult with an expert so the estate can transfer and the gift can be made with as little applicable tax as possible. To learn more about taxes and gifting as it relates to your estate plan, please visit our website.
Reference: Forbes (October 22, 2015) "IRS Announces 2016 Estate And Gift Tax Limits: The $10.9 Million Tax Break."