The Department of Labor has released the August 2013 Consumer Price Index (CPI). Many tax figures are adjusted for inflation each year based upon the average CPI for the 12-month period ending the previous August 31. As a result, inflation adjusted gift, estate, and generation-skipping transfer (GST) tax exemptions can now be calculated for the 2014 tax year:
- The unified estate and gift tax exemption amount is $5,340,000 (up from $5,250,000 in 2013)
- The exemption from GST tax is $5,340,000 (up from $5,250,000 in 2013)
- The gift tax annual exclusion will remain at $14,000
- The annual exclusion for gifts made to noncitizen spouses is $145,000 (up from $143,000 in 2013)
These amounts, and the inflationary increase in these amounts, provide a variety of planning opportunities including the following:
- Leveraging the increased amounts to make gifts of business interests that are subject to valuation discounts to family members or trusts for family members
- Using the increased amounts to make gifts/sales to intentionally defective grantor trusts
- Using the increased amounts to make outright gifts to children and grandchildren
- Using the increased amounts to make gifts of primary and/or vacation homes to Qualified Personal Residence Trusts (QPRTs)
The annual inflation adjustment to the estate, gift, and GST tax exemptions is also great opporunity to institute a yearly gifting program to continually pass wealth to family members without incurring tax. These exemptions (and their annual inflation increases) are technically permanent — though, in the estate planning world, "permanent" means until Congress decides otherwise. Anyone in a position to take advantage of these exemptions should do so right away. As Benjamin Franklin once said, "You may delay, but time will not."
Originally published October 1, 2013
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.
