IRS Raises Limit on Estate and Gift Tax Exclusions


The Internal Revenue Service has raised the limit on estate and gift tax-free transfers during life or at death.  Beginning in 2015, that amount (known as the applicable exclusion amount) will increase to $5.43 million per person, up from $5.34 million this year.  This announcement, in Revenue Procedure 2014-61, indicates there will be no change in the annual exclusion, allowing you to give $14,000 in cash or other assets each year to as many individuals as you want without using your lifetime applicable exclusion amount. The annual exclusion gifts do not count against the lifetime applicable exclusion amount.  Also, direct payments to medical providers or for tuition, for any person, do not count against either the annual exclusion amount or the lifetime applicate exclusion amount.  Another tactic is to fund a 529 college savings plan for your children or grandchildren. There’s a special rule, a 5-year election, that lets you put five years of annual exclusion gifts in a plan at once.  This means that you cannot give annual exclusion gifts to that child or grandchild within this 5 year period.

The lifetime applicable exclusion amount and the estate tax exclusion amount are expressed as a total amount and it is possible to use these exclusions to transfer assets during life or at death.  Once your gifts exceed this amount or if at death, your prior gifts plus your remaining assets exceed the applicable exclusion amount, then there will be gift or estate taxes at the marginal rate of 40%. is 40%.  For people who have previously completely used their lifetime applicable exclusion amount, they can give an additional $89,000 this year.  Another way to use this extra exclusion amount is to benefit a descendant who was born after your initial planning, and is therefore not a beneficiary of earlier gifts.

These rules now apply to same-sex married couples, no matter what state they live in.

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