The Estate Tax

In 2001, Congress passed a law that made big changes to the estate tax.  It raised the amount that could pass without tax, increasing it in steps from $675,000 in 2001, to $3.5 million in 2009.  Then, in 2010, the estate tax was repealed for one year only—2010.  However, late in 2010, Congress brought the estate tax back with yet another new law: the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRA 2010”). The law included a laundry list of tax extensions and made three major changes. These changes involved the applicable exclusion amount, the tax rate, and a new portability provision. TRA 2010 set the amount that could pass without tax at $5 million (adjusted for inflation) per person for 2010-2012.

TRA 2010 was temporary and these changes were set to expire at the end of 2012. After TRA 2010’s expiration, the amount that could be passed free from tax would have gone back down to $1 million per person.

However, President Obama signed the American Taxpayer Relief Act of 2012 (“ATRA”) on January 2, 2013. ATRA repealed the expiration provision in TRA 2010, thus setting the exclusion to $5 million (inflation adjusted) for estate, gift and generation-skipping purposes. The rate is capped at 40%. The top rate would be applicable to all but a few transfers above the exclusion.

Estate Tax Exclusion

As you know, not everyone’s assets are subject to the estate tax. Each person gets what’s called an “estate tax exclusion.” This is the amount of property that can be passed to your heirs and beneficiaries free of the estate tax at the time of your death. Under ATRA and TRA 2010, the exclusion amount is set at $5 million, adjusted for inflation annually.

Estate Tax Rate

If the value of your estate exceeds the applicable estate tax exclusion amount and ends up being subject to the estate tax, the top tax rate would be 40%.


The “portability” provision from TRA 2010 is   also retained in ATRA. Portability allows a surviving spouse to use the unused estate tax exclusion amount of the first spouse to die.

This portability provision, also known as the “Deceased Spousal Unused Exclusion Amount,” can be used to shelter the assets of the surviving spouse. In order to take advantage of portability, the estate of the first spouse to die must file an estate tax return to elect portability.  However, portability may not be wise when you have a blended family or want remarriage protection or asset protection for the surviving spouse.

The Gift Tax

What happened to the gift tax under the new law?

Annual Exclusion

The annual exclusion amount for the federal gift tax is at $14,000 for 2017, and it will be adjusted for inflation in 2018 and later years.

This means that, this year, the maximum value of gifts you can give to a single recipient without filing a gift tax return and without tapping into your lifetime exclusion, (discussed below), is $14,000. Spouses can combine their annual gift tax exclusions and give gifts of up to $28,000 in value to each recipient this year.

Lifetime Exclusion

What if your annual gifts to one recipient are more than the annual exclusion amount? You can use a portion of your estate tax exclusion to make lifetime gifts, but then your exclusion would not be available at death.

In 2017, you can use your whole inflation adjusted exclusion of $5,490,000 during your lifetime. Of course, then you would not have any available at death.

Gift Tax Rate

As with the estate tax, the top gift tax rate is 40%.