2016 Estate Planning Update

As soon as the last of the turkey is made into turkey soup, ‘tis the season to focus on year-end tax planning, particularly taking advantage of the gift tax annual exclusion.

An individual can make gifts free of gift tax and without using any of his or her lifetime gift tax exemption of up to $14,000 per person per year.  A married couple can make gifts of up to $28,000 per person per year regardless of which spouse actually makes the gift.  (The annual exclusion amount is adjusted annually for inflation but will remain at $14,000 for 2016.)  However, if you fail to make a gift in any one year the exclusion for that year is lost.  Therefore, if you have not already done so now is the time to take advantage of the annual exclusion.  Note that if the gift is made by check the check must clear by year-end to qualify as a gift made in 2015.  You can make annual exclusion gifts again in January for 2016.

2016 Inflation Adjustments

Although the gift tax annual exclusion remains the same, the following were adjusted for inflation for 2016:

  • The federal gift tax, estate tax and generation-skipping transfer tax exemption increased to $5,450,000 from $5,430,000.
  • The annual gift tax exclusion for gifts to non-citizen spouses has increased to $148,000 from $147,000.
  • The amount at which gifts received by a U.S. taxpayer from foreign corporations and partnerships must be reported to the IRS has increased to $15,671 from $15,601. Gifts from foreign individuals are not indexed and must be reported if at least $100,000.

The New York State estate tax exemption will increase on April 1, 2016, to $4,187,500.

December 2015 Interest Rates

The annual short-term, mid-term, and long-term interest rates as set by the Treasury for December 2015 are .56%, 1.68%, and 2.61%, respectively.  These are the minimum rates set by the Treasury that must be charged on transactions between related individuals to avoid the imputation of interest.

The December 2015 Section 7520 rate is 2%.  This rate is used to calculate the value of certain transfers such as a grantor retained annuity trust (“GRAT”), charitable lead trust, or charitable remainder trust. Growth beyond this “hurdle” rate generally accrues to the donee.

The current low rates provide attractive estate planning opportunities with respect to GRATs, charitable lead annuity trusts, installment sales, and intra-family loans.

Happy Holidays!

For more information on this topic, contact your Trusts and Estates counsel at Smith, Gambrell & Russell, LLP.

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