Last year it dawned on me that a lot of us out there, including myself, find ourselves constantly “Googleing” different estate and gift tax thresholds throughout the beginning of the year for a quick refresher on the updated thresholds. The purpose of this post is to provide a snapshot of some of the most common 2016 estate and gift tax thresholds, tax rates, exemptions, elections, etc. Feel free to use this how you see fit. Additionally, if you have any other commonly used 2016 estate and/or gift tax updates that I may have left off the list, please feel free to leave them in the comments.
Federal Gift Tax
- Lifetime Exemption: $5,450,000
- Annual Exclusion: $14,000
- Gift-Splitting: Yes, if married and spouse consents (i.e., annual exclusion is $28,000 for married couples)
- Rate: 40% on gifts above the lifetime exemption (plus the annual exclusion)
Federal Generation-Skipping Transfer Tax
- Exemption: $5,450,000
- Portability: No
- Rate: 40% on generation-skipping transfers above the exemption
Federal Estate Tax
- Exemption: $5,450,000 (exemption is decreased by lifetime gifts)
- Portability: Yes (i.e., surviving spouse may elect to use deceased spouse’s unused exemption, in effect, giving married couples an exemption of $10,900,000)
- Rate: 40% on the value of the estate above the exemption amount
Federal Income Tax for Trusts and Estates
- Tax Brackets: see chart below
- Tax Rates: see chart below
- Net Investment Income Tax: A 3.8% surcharge tax on net investment income applies to trusts and estates that are above the $12,300 income threshold (i.e., the marginal tax rate on net investment income above that threshold is then 43.4%)
- Distributable Net Income: Net income that is distributed to beneficiaries of a trust or estate is taxed at the beneficiaries’ level and not at the trust or estate’s level
|Chart: Federal Income Taxation of Trusts and Estates|
|If Taxable Income is:||The Tax is:|
|Not over $2,550||15% of the taxable income|
|Over $2,550 but not over $5,950||$382.50 plus 25% of the excess over $2,550|
|Over $5,950 but not over $9,050||$1,232.50 plus 28% of the excess over $5,950|
|Over $9,050 but not over $12,400||$2,100.50 plus 33% of the excess over $9,050|
|Over $12,400||$3,206 plus 39.6% of the excess over $12,400|
Each State has its own set of rules when it comes to estate tax, gift tax, inheritance tax, and income taxation of trusts and estates. Be sure to check with a professional in your State for an update.
For a complete summary of all 2016 Federal tax-related inflation adjustments see Rev. Proc. 2015-53, available here: https://www.irs.gov/pub/irs-drop/rp-15-53.pdf.
I hope this helps!
© 2015 Matthew D. Brehmer and Crummey Estate Plan.