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2017 Estate Tax Summary


I previously provided summaries of estate and gift taxes for 2013, 2014, 2015 and 2016. As with the last few years, the changes at the beginning of this year are primarily inflation adjustments. For 2017, the unified federal estate, gift and GST tax exemption rises by just $40,000 — from $5.45 million in 2016 to $5.49 million in 2017.

Here is an executive summary of the current Federal and Illinois estate, gift and generation skipping tax exemptions and rates for 2017:

Federal Estate Tax
  • Exemption Equivalent: $5,490,000 (up $40,000)
  • 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: $5,490,000 (total lifetime taxable gifts)
  • Annual Inflation Indexing: Yes (rounded annually to the nearest $10,000)
  • Annual Gift Tax Exclusion: $14,000 (same as 2016; 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: $5,490,000 (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 for 2017 (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 $12,500 income
  • Marginal Rate: 39.6% top rate applies to income over $12,500.
  • 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 2017, see IRS Rev. Proc. 2016-55.

Change is Coming?

With the new administration and leadership shift in Congress, the prospects for significant estate and gift tax reform, in 2017 and beyond, are strong. Both President-elect Trump and congressional Republicans have signaled their intention to repeal the estate tax. Yet, even with majority control, it’s unclear how these efforts might unfold. In 2001, similar political alignment resulted in a 10-year phased-in repeal, which was ultimately changed in 2011. Budgetary rules and constraints make significant long-term tax reduction difficult to enact. For estate planning purposes, we have been stressing flexibility and income tax considerations for a number of years, and that will continue to remain important.

If and when Congress enacts estates and gift tax changes, I will outline the changes and discuss its impact on estate planning. To keep up with estate planning and timely legislative developments, follow me on Twitter @JeffGottliebLaw.

There are also some important and interesting new Illinois laws for 2017 affecting trusts and estates. Watch for new blog posts in the coming weeks discussing these developments.

Happy New Year to all!

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