November 7, 2013
Estate Tax in 2014
When a deal was reached to avert the fiscal cliff back in December 2012 (how time flies), the baseline for the estate tax was made permanent. Whereas before the estate tax was subject to periodic renewal, or repeal as in the case of 2010, the American Taxpayer Relief Act of 2012 ("ATRA") ushered in a permanent baseline estate tax amount. This baseline amount, $5M in 2010 dollars, would be indexed to inflation for the upcoming years. The chart below shows how the estate tax has increased incrementally since 2010.
Of note, the ATRA is subject to amendment or repeal, but such would require an act of Congress and Presidential approval. Previously the estate tax needed re-authorization periodically because the law lacked the required number of votes to make the baseline amount permanent. This changed when the ATRA received enough votes to make it permanent in the U.S. Senate. This was welcome news to attorneys and clients because the estate tax is no longer, presumably, a moving target that is subject to
the whimsical nature of politics.
Since the estate tax was pegged to inflation, the IRS has recently released the inflation adjusted figure for 2014. For decedents who pass away in the year 2014, the applicable exclusion amount will be $5.34M. In plain terms this means that if a decedent passes away in 2014 and their estate is equal to or less than $5.34M, no estate tax will be due.
The decedent's estate includes basically any asset wherever located. In other words, pretty much everything you own, regardless of location, is valued for estate tax purposes. However, few estates are actually affected by the federal estate tax given that the applicable exclusion amount is quite large. Still, this post is only dedicated to the federal estate tax and each state is free to impose their own estate tax. For example, you may be reading this article and be domiciled in New York state (hat tip: Google Analytics), which does impose an estate tax. For reference, California does not impose an estate tax.
Year Amount Excluded Maximum T ax R ate