Federal Estate Tax and Estate Tax Planning

The Federal Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death, and is reported to the IRS by way of a Form 706, a copy of which is located at the link. The fair market value of these items is used, which is the market value at the date of death, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash, bank accounts, CD's, investment accounts, securities, real estate, insurance, trusts, annuities, business interests and other assets. Essentially, everything you own is counted.

Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses such as funeral, cemetery and executor's fees, as well as property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms are subject to special rules and may be reduced for estates that qualify. 

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. The unified credit is a number which applies to both lifetime gifts and gifts you may make through your estate. Keep in mind that you are entitled to only one unified credit and if you use it completely in making lifetime gifts, there may be no credit left to you estate to deduct. 

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 through 2005; $2,000,000 in 2006 through 2008; $3,500,000 for those passing away in 2009; and $5,000,000 or more for those dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012 and $5,250,000 in 2013. 

Keep in mind that for married couples, each spouse receives the $5,250,000 2013 exemption, and with proper planning and asset allocation, a couple can pass a combined $10,500,000 to the next generation without payment of the Federal Estate Tax. The 2013 exemption is indexed for inflation and will be greater in following years.

The current top tax rate is 40% on amounts over the 2013 exemption of $5,250,000. For a more specific breakdown of rates see the following: 

Tax Exemption Inflation Increases for 2015

  • In 2015, there is a $5,430,000 federal estate tax exemption (increased from $5,340,000 in 2014) and a 40% top federal estate tax rate.
  • In 2015, there is a $5,430,000 GST tax exemption (increased from $5,340,000 in 2014) and a 40% top federal GST tax rate. 
  • In 2015, the lifetime gift tax exemption is $5,430,000 (increased from $5,340,000 in 2014) and a 40% top federal gift tax rate.
  • In 2015, the annual gift tax exclusion is $14,000 (no increase from 2014).


Frequently asked questions:


What is included in the Estate?

What is excluded from the Estate?

What deductions are available to reduce the Estate Tax?

What is "Fair Market Value?"

What about the value of my family business/farm?

What happens if I sell property that I have inherited?


How we can help:

The attorneys at Avery & Avery have the experience to guide you and your family through the intricacies of Federal Estate tax planning to ensure the best outcome for your individual needs. Our services can include the drafting of  a Last Will and Testament to best complete your goals, as well as Powers of Attorney, Living Wills and Advance Directives, all as a part of a comprehensive estate plan. For a free consultation contact us through our Contact Page, or call directly at 201-943-2445.

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