As we mentioned last week there are still 2013 planning opportunities that can be accomplished in 2014.  It’s also a good time to begin thinking about 2014 planning opportunities.  For the first time in several years, the transition to a new year did not coincide with uncertainty or drastic changes in the tax law that will make long-term planning a speculative endeavor.  The American Taxpayer Relief Act of 2012, “permanently” established numerous aspects of the transfer tax system that had been in flux for almost a decade, including the exemption amount, which is indexed for inflation.  Below are the current tax considerations that will affect your planning in 2014 and beyond:

  • Exemption Amount: The current exemption amount for the estate, gift, and generation-skipping taxes is $5,340,000, up from $5,250,000 in 2013.  Thus, a taxpayer may gratuitously transfer up to $5,340,000 of property without paying transfer tax.
  • Tax Rate for Estate, Gift, and Generation-Skipping Tax: The tax rate is fixed at 40%.
  • DSUE Amount:  The American Taxpayer Relief Act of 2012 made portability a permanent aspect of the law.  Thus, a spouse may use their deceased spouse’s unused exemption (DSUE) amount.  However, the DSUE amount is not indexed for inflation and remains at $5,000,000.  If you have a DSUE and remarry, you may want to plan to use it by making gifts and not risk losing it if your new spouse should pass away before it is used, in which case the latest deceased spouse’s DSUE amount, if any, would replace the previous DSUE.
  • Annual Exclusion: A donor may give away $14,000 of property (assuming the gift is a gift of a present interest) per donee without using any of the $5,340,000 exemption.
  • Threshold for Highest Income Tax Rate for Trusts and Estates: Trusts and Estates will be taxed at a rate of 39.6% on all income above $12,150.
  • Planning for Net Investment Income:  2013 was the first year for the new 3.8% tax on net investment income, which means taxpayers will feel the impact of the tax for the first time in 2014 as the tax is paid.  Moving forward, proper planning dictates accounting for the new 3.8% tax.