The Internal Revenue Service (IRS) recently announced that the 2015 estate tax exemption amount will increase to $5.43 million per individual this year, adjusted for inflation (the 2014 exemption was $5.34 million). The increase provides each individual with an additional $90,000 that could be passed on tax-free to their heirs. Married couples, with proper planning, can transfer two exemption amounts, allowing them to pass $10.86 million to their heirs without having to pay federal estate tax. For the wealthy, this inflation adjusted increase is important, because the top federal estate tax on amounts above the exemption is 40%.

The annual gift exclusion remains the same, staying at $14,000. This means that taxpayers are still allowed to give up to $14,000 tax-free to as many different individuals as they would like during the tax year. Gifts made in an amount at or less than the gift tax exclusion are not applied against your lifetime gift exclusion. There is great flexibility applied to gifts used to fund 529 college savings plans, allowing you to leverage a five-year election, that lets you put five years of annual exclusion gifts into a plan at once ($14,000 x 5 = $70,000). For example, Grandmother could gift $70,000 and deposit into an account for her grandson. Grandmother would have to file a gift tax return, but there would not be a gift tax, assuming no other gifts to that child are made over the period. So Grandmother should be careful, as birthday, holiday, graduation and other celebratory gifts could create tax consequences.

One thing to watch out for when making gifts to younger members of the family – the kiddie tax. This tax, which covers students through the age of twenty-three, puts investment income, above small amounts, into the parent’s tax bracket. For 2015, the child or student does not pay any tax on the first $1,050 of unearned income.

With all gifts, you should keep careful records. Your lifetime gift tax exemption is tied to the estate tax exemption, meaning you can make tax-free gifts or transfers during your lifetime at the same levels as you could leave to your heirs at death. Of note, gifts between U.S. spouses are unlimited.

At Monarch, we recommend that you discuss your personal and family estate tax concerns with an attorney who specializes in estate planning, including wills and trusts. A certified public accountant (CPA) can assist you in the process and make recommendations regarding annual tax reporting.

Monarch Asset Management is a Registered Investment Advisor located in Sarasota, FL. Monarch. Wealth Managed Well. is a boutique provider of comprehensive wealth management services including financial planning, cash management and bill payment, and family office services. www.wealthmanagedwell.com

Reference:
www.irs.gov/publications/Revenueprocedure2014-61
www.forbes.com, IRS announces 2015 Estate and Gift Tax Limits, October 30, 2014