By Phillip B. Rarick, Esq. and Jay R. Beskin, Esq.
2016 Federal Estate Tax Exemption: $5.45 Million
For 2016 the federal estate and gift tax exemption is now $5.45 million – up from $5.43 million in 2015. This means a single U.S. citizen can leave $5.45 million to their family members and friends and pay no estate tax if they die in Florida since Florida does not have an estate tax. (As some commentators have stated, Florida is a great place to die. For states where you don’t want to die see Where Not To Die)
Married U.S. citizens can leave $10.9 million to their heirs but there is a trap here for the surviving spouse. This benefit does not pass automatically to the survivor. The surviving spouse has to make a timely election to secure the benefit of the unused portion of the deceased spouse’s exemption known as the DSUEA – the decease spousal unused exclusion amount. If the surviving spouse does not make a timely election to claim the DSUEA following the death of the spouse, or did not have a credit shelter trust established and funded prior to the death of the first spouse, the surviving spouse will likely be left with the $5.45 million exemption.
Note: Let’s say the husband dies first with an estate of $8 million. Because of the unlimited estate tax exemption, the husband can gift an unlimited amount estate tax free to the wife. Therefore some might believe the surviving spouse does not need to file a 706. But to preserve the DSUEA, the wife needs to timely file a 706 return to claim her deceased husband’s $5.45 exemption.
3 Take-Away Points
- If you have not reviewed your estate plan since 2012, this year is the time to do so because the 2012 American Taxpayer Relief Act (ATRA) has fundamentally changed how most persons plan their estates. See The Estate Planning World Has Flipped 180 Degrees by ATRA.
- Do not be fooled into believing you have no tax issues to worry about if your estate is under $5.45 million. Now, an important tax planning objective for many persons – especially persons who purchased real estate years ago with a low basis – is to secure a step-up in basis to minimize capital gains.
- The state of residence is important. For snowbirds or persons who split time between Florida and another state it is often advisable to clearly establish Florida as your state of domicile for tax reasons.
The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an experienced Miami trust attorney. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.