For persons dying in 2014, the estate tax exemption is $5,340,000. If the surviving spouse files a timely estate tax return for the first-spouse-to-die, the first-spouse-to-die’s exemption can be added to the surviving spouse’s exemption. This is called portability. Unless the current exemptions are reduced, and there is no longer a sunset date at which they will expire, the assets of most people will not be subject to the federal estate tax at their deaths. President Obama has put forward a proposal which would reduce the exemption to $3,500,000, but at this time there are not enough favorable votes in Congress to pass this proposed legislation. It is important for people to monitor future changes in the law that Congress might choose to enact.
In 2014 the annual free gift is $14,000 per donor per donee. Many people make gifts to family members either out of love or to help meet a need of the donee. But if the only reason for making the gift is to save estate taxes, donors need to consider whether or not their assets are likely to be subject to estate taxes based on the current rules discussed above. Further, there are advanced techniques to reduce estate taxes such as family limited partnerships, grantor retained annuity trusts, sales to defective grantor trusts, and qualified personal residence trusts. In determining whether or not these advanced techniques are worth considering, donors again need to consider whether or not their assets are likely to be subject to estate taxes.