The federal government imposes a tax on your income. In addition, a gift tax is imposed on annual gifts larger than the gift tax annual exclusion amount ($15,000 in 2020, indexed for inflation) that are made to persons, other than charities, and that do not qualify for other exclusions. The estate tax is imposed on property transferred at death. The estate tax is calculated on a decedent’s “taxable estate,” which includes all property owned by the decedent at death, less certain deductions. Each estate is entitled to a credit that eliminates the estate tax on an amount of the taxable estate, with this “exclusion amount” established with reference to the year in which the decedent dies.
Every individual has a lifetime estate tax credit, which operates to shelter all or a portion of the individual’s estate from estate tax. For estates of decedents dying in 2020, the credit amount is $4,577,800, which shelters up to $11,580,000 from estate tax. The exclusion amount was $11,400,000 in 2019, with a corresponding applicable credit amount of $4,417,800.
In addition, married spouses can take advantage of the concept of “portability.” Portability allows the estate of a decedent who is survived by a spouse to make a portability election to permit the surviving spouse to apply the decedent’s unused exclusion (the deceased spousal unused exclusion (DSUE) amount) to the surviving spouse’s own transfers during life and at death. Effectively, portability allows both spouses to transfer a combined estate of double the basic exclusion amount estate-tax-free ($22.36 million for 2020).
Please call our office if you would like to discuss your current estate plan and how you can plan in light of continued estate tax uncertainty.