2017 Estate & Gift Tax Update
A Legal Moment

2017 Estate & Gift Tax Update

    While 2017 brings only incremental increases in the Federal exclusion amounts for bequests and lifetime gift-giving, the significant changes in, and uncertainty about, exclusion amounts over the past 5-10 years warrant careful review of tax planning provisions in older estate planning documents.

Estate & Gift Tax Exclusion Amount

The federal exclusion amounts for bequests and lifetime gift-giving continue to increase slightly, as adjusted for inflation.  For 2017, the federal estate tax exclusion amount is $5.49 million per person (up from $5.45 million in 2016).  This is also the current “unified exclusion amount” for the sum total of a person’s “lifetime gifts” (gifts in excess of the applicable annual exclusion amounts in effect when the gifts were made), together with the property passing to beneficiaries upon the donor’s death.  This figure also represents the current exclusion amount for generating-skipping gifts (e.g., gifts to grandchildren).  Estates (and/or lifetime gifts) in excess of $5.49 million are taxed at a maximum rate of 40%.  Generation-skipping gifts in excess of $5.49 million are taxed at an (additional) maximum rate of 40%.

   There is currently no state inheritance, estate or gift tax in North Carolina.
Review of Estate Planning Documents for Outdated Provisions
In contrast to the high current federal estate and gift tax exclusion amount, as recently as 2008 the exclusion amount was $2 million; in 2003 it was $1 million, and in 2001, it was $675,000.  This change has resulted in many outdated estate plans, and much of the tax-avoidance attention in estate planning (for estates less than the exclusion amount) has now shifted away from estate tax, focusing instead on income tax considerations -- including efforts to maximize stepped-up basis of appreciated assets and avoidance of capital gains.  In general, it is recommended that estate planning documents be reviewed on a regular basis and whenever one experiences significant life changes -- or changes in dispositive wishes.  It may also be important to review estate planning documents (particularly those drafted prior to 2013) to make sure the tax planning contained in earlier documents does not unnecessarily increase income tax liability or otherwise frustrate your intent under current tax laws.
Annual Exclusion Gifts & Spousal Gifts

    There is no change in the federal annual gift exclusion amount this year; it remains at $14,000 per donee (the amount since 2013).  This exclusion allows an individual donor to give an unlimited number of “annual exclusion gifts,” so long as the amount of the gift does not exceed $14,000 per donee during calendar year 2017.  (Generally, married couples can give $28,000 per donee as long as certain measures are taken.)
   Annual exclusion gifts do not use up any of a person’s lifetime “unified exclusion amount”, and generally no gift tax return is required.  If you make a gift in excess of $14,000 to one donee, you may still avoid paying a gift tax on the excess by filing a gift tax return (IRS Form 709) and electing to use part of your unused unified lifetime estate and gift tax exclusion amount to cover the overage. 

   As in years past, a person may give an unlimited amount to his or her spouse by using the “unlimited gift tax marital deduction,” as long as the donee spouse is a U.S. citizen.  If the donee spouse is not a U.S. citizen, tax-free transfers to the non-citizen spouse are limited to a “super annual exclusion” amount of $149,000 in 2017, up from $148,000 in 2016.  As with other gifts in excess of annual exclusion amounts, the donor spouse may avoid tax by filing a gift tax return and electing to use his or her unused exclusion amount to cover the overage.
   Keep in mind that all annual exclusion gifts and spousal gifts must be gifts of a “present” interest as opposed to a “future” interest, and further qualifications can apply.  It is therefore recommended that you consult your tax advisor prior to making a particular gift.

Other Tax-Free Gifts
Gifts to qualified charities may generally be made in unlimited amounts, gift tax-free.  In addition, certain direct payments made on behalf of an individual are not considered “gifts” at all, and may be made in unlimited amounts.  These include direct payments on behalf of another person to educational institutions for tuition and to medical providers for medical care.  These payments must be made directly to the institutions or providers, however, or they will be treated as gifts to the individuals.  Because certain qualifications may apply, it is recommended that you consult your tax advisor before making particular charitable gifts or payments on behalf of others.  Your tax advisor can also advise as to whether your charitable gifts are deductible on your income tax returns.
Personal Update Reminder
As you contemplate your gift plans for 2017 and review your current estate planning documents, consider also a review of your life insurance and retirement plan beneficiary designations to confirm (1) that the designations are what you think they are, (2) that they continue to conform to your current wishes; and (3) that the designations are properly coordinated with your estate plan as spelled out in your Will or Revocable Trust.
   You can find a more thorough discussion of beneficiary designations and common mistakes associated with them in "IRA and Life Insurance Beneficiary Designations:  Time for a Tune-Up?"



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Gay Vinson is an attorney at Marshall, Roth & Gregory, PC. Her practice is concentrated in trust and estate planning and administration.
  To receive more information on this topic or to suggest topics for future editions of "A Legal Moment," feel free to contact Gay by email ( or telephone (828.281.2100). 

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You may not rely on this content as legal advice for any specific situation, but should instead contact an attorney for specific advice.
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