The 2016 federal estate and gift tax exemption rose to $5.45 million per person. This amount is slightly above the $5.43 million estate tax exemption for 2015.
This means that during 2016, a person can bequeath to his or her heirs an estate of up to $5.45 million per heir, including any gifts made during that person’s lifetime, without having to pay federal estate tax. The top federal estate tax rate for amounts above that remains at 40%.
The 2016 annual exclusion for gifts has not increased since 2014, and remains at $14,000 per donee. Wealthy individuals will sometimes make gifts to their children and grandchildren on an annual basis to reduce the size of their estate. For example, a parent can make a gift of up to $14,000 to each child, without having to file a gift tax return or pay gift tax. It is important to note, however, that even if a gift tax return needs to be filed, until lifetime donations to a person exceed $5.45 million, no gift taxes will need to be paid by the donor or donee. The “exclusion” means that a gift tax return does not need to be filed.
Generally, the donor is responsible for the gift tax, but the donee(s) may agree to pay the tax instead, as per IRS guidelines.
Regarding any state estate or inheritance tax, individuals should consult with their attorney, tax advisor or with the department of taxation in their state of residency.