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2016 Estate Tax Summary

2016

Previously I wrote summaries of estate and gift taxes for 2013, 2014 and 2015. As with the last couple years, the changes this year are primarily inflation adjustments. For 2016, the unified federal estate, gift and GST tax exemption rises by just $20,000 — from $5.43 million in 2015 to $5.45 million in 2016.

Here is an executive summary of the current Federal and Illinois estate, gift and generation skipping tax exemptions and rates for 2016:

Federal Estate Tax
  • Exemption Equivalent: $5,450,000 (minus lifetime adjusted taxable gifts)
  • Annual Inflation Indexing: Yes (rounded annually to the nearest $10,000)
  • Portability of unused exemption to surviving spouse: Yes (by timely election on Form 706 Estate Tax Return of deceased spouse)
  • Rate: 40% (flat rate on taxable estate above exemption)
Federal Gift Tax (unified)
  • Lifetime Gift Tax Exemption: $5,450,000 (total lifetime taxable gifts)
  • Annual Inflation Indexing: Yes (rounded annually to the nearest $10,000)
  • Annual Gift Tax Exclusion: $14,000 (same as 2015; increased by inflation indexing in $1,000 increments)
  • Rate: 40% (flat rate on gifts above exemption)
Federal Generation-Skipping Transfer (GST) Tax (unified)
  • GST Exemption: $5,450,000 (minus lifetime GST exemption used)
  • Annual Inflation Indexing: Yes (rounded annually to the nearest $10,000)
  • Portability of unused exemption to spouse: No
  • Rate: 40% (flat rate on GST transfers above exemption)
Illinois Estate Tax
  • Estate Tax Exemption: remains at $4,000,000 (not scheduled to rise)
  • Inflation Indexing: No
  • Gift Tax: None
  • Portability of unused exemption to spouse: No
  • Rate: Varies (effective rate up to around 28.5%)
Federal Trust and Estate Fiduciary Income Tax
  • Tax Brackets: Reaches top marginal rate at $12,300 income
  • Marginal Rate: 39.6% top rate applies to income over $12,300.
  • Medicare Surcharge: Subject to 3.8% Medicare surcharge tax on net investment income
  • Pass Through: Income passed through to beneficiaries via K-1 to the extent of distributions

To review all inflation-adjusted numbers for federal tax purposes for 2016, see IRS Rev. Proc. 2015-53.

Planning Considerations

The current stability in Estate, Gift and GST taxes makes this a good time to complete an estate plan. Particularly for married couples that have trusts that have not been updated within the past 6 to 8 years, a review and possible update may be in order. The gap and differences between Federal and Illinois estate taxes creates potential traps for older estate plans created under different rules, but also provides some unique planning opportunities.

Image courtesy of Anoop Krishnan via freedigitalphots.net.

One Comment

  1. Dennis Daniels says:

    Thanks for these updates.