On Monday, the 2nd of February, 2015, the Department
of Treasury released the Obama Administration's 2016 Budget (Green
Book). As the Republicans won the majority of seats in the House of
Representatives in the 2010 midterm elections, it is likely that
the Budget will not become law. But the U.S. is still in a deficit
even though it is deficit has been decreasing as reported in The Wall Street Journal and is currently
approximately $483.35 billion – a figure that should continue
to give concern to tax practitioners and rightly so. The following
provides a summary relating to the proposed changes estate and gift
tax sections of the Internal Revenue Code by the Budget.
Estate Tax and Generation Skipping Tax (GST).
Currently both the estate tax and the generation skipping tax
exemptions are indexed for inflation. The exemption is $5.43
million with the top rate set at 40%. The GST exemption allows
planners to use the exemption to transfer $5.43 million currently
into a trust wherein the beneficiaries are two or more generations
younger than the settlor. Such trusts are usually referred to as
The Budget proposes to reduce the Estate and the GST tax
exemption to its 2009 levels. In 2009 the exemption was $3.5
million. The Budget also proposes to increase the top rate to 45%.
The Budget proposes to restrict the GST exemption only to the
90th year of the creation of a trust.
Currently the gift tax is tied to the estate tax. One can gift
up to $5.43 million during one's lifetime but must keep track
of gifts over $14,000 to any one person as such h gifts will count
against the eventual estate tax exemption amount. No need to worry
about exceeding the limit where the gift is to a U.S. spouse. For
2015 the annual exclusion to a non-US spouse is limited to $145,000
per year. Any amounts gifted over the exclusion must be reported on
IRS Form 709. It is advisable for taxpayers to keep copies of their
Form 709s filed so that it is easier for the executor to calculate
the estate tax exemption.
The proposal aims to untie the gift tax exemption from the
estate tax exemption. The life time gift exemption would be reduced
to $1 million.
On page 204 of the Green Book, the proposal is to aims to define
a new category of gift exemptions and would impose an annual limit
of $50,000. This new category will be indexed for inflation. On
page 205 of the Green Book:
Thus, a donor's transfers in the
new category in a single year in excess of a total amount of
$50,000 would be taxable, even if the total gifts to each
individual donee did not exceed $14,000. The new category
would include transfers in trust (other than to a trust
described in section 2642(c)(2)), transfers of interests in
passthrough entities, transfers of interests subject to a
prohibition on sale, and other transfers of property that, without
regard to withdrawal, put, or other such rights in the donee,
cannot immediately be liquidated by the donee. (emphasis
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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