Advisories
2017 Tax Update
By Davis Wright Tremaine's Trusts & Estates Group
05.24.17
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A. 2017 Federal Transfer Tax Exemptions
The current 2017 federal exemption against estate and gift taxes is $5,490,000 per person. This includes a $40,000 increase over the 2016 federal exemption based on an inflation adjustment. Such exemption may be used during lifetime or at death. The marginal rate for gifts and estates of decedents in excess of the exemption amount is 40%. The federal generation-skipping transfer (“GST”) tax exemption also received a similar increase to $5,490,000 per person. Such GST tax exemption may be used during lifetime or at death. The GST tax rate is currently a flat 40%. The filing threshold for federal estate tax is $5,490,000. Each estate with an aggregate value in excess of $5,490,000 is required to file a federal estate tax return, regardless of whether federal estate tax is due. It is also possible to make a decedent’s unused federal estate tax exemption portable to a surviving spouse, but a federal estate tax return must be filed to do so. This relatively new exemption portability opens the door to additional income tax planning, in the form of obtaining a step-up in asset basis at the death of both spouses and use of both spouses’ exemption amounts.
The table below illustrates the recent history of the federal gift and estate taxes.
The annual federal gift tax exclusion remains unchanged in 2017 at $14,000 per donor. Individuals are also able to pay an unlimited amount of tuition and medical expenses directly to a provider on behalf of a third party without any gift tax liability.
B. Washington State Estate Tax Exemption.
The 2017 Washington State estate tax exemption is $2,129,000 per person. This represents an increase of $50,000 over the 2016 exemption based on an inflation adjustment. Washington decedents dying with estates in excess of the Washington State estate tax exemption amount are subject to a 10% to 20% estate tax. On May 17, 2017, the filing threshold for Washington State estate tax was increased to $2,129,000 from $2,000,000. Each estate with an aggregate value over $2,129,000 is required to file a Washington State estate and transfer tax return regardless of whether Washington State estate tax is due. Washington has no gift or GST tax, which presents myriad planning opportunities.
C. Oregon State Estate Tax Exemption
The 2017 Oregon State estate tax exemption remains at $1,000,000 per person. Oregon resident decedents dying with estates in excess of the Oregon State estate tax exemption amount are subject to a 10% to 16% estate tax. Please note that the filing threshold for Oregon State estate tax remains at $1,000,000. Each estate with an aggregate value over $1,000,000 is required to file an Oregon State estate tax return regardless of whether Oregon State estate tax is due. Oregon does not tax lifetime gifts as it has no gift tax so lifetime giving remains an excellent strategy to reduce the donor’s taxable estate for Oregon estate tax purposes.
D. Potential Changes to the Federal Estate Tax
One element of President Trump’s campaign was the goal of repealing the federal estate tax. On April 26, 2017, President Trump announced his proposed tax package, including repeal of the federal estate tax. President Trump has also suggested that the federal estate tax be replaced with a capital gain tax on death. Various other proposals have been made by members of Congress. The administration initially indicated that federal tax reform will be addressed after federal health care reform. The timing and details of any federal tax reform are uncertain at this time.
A. 2017 Federal Transfer Tax Exemptions
The current 2017 federal exemption against estate and gift taxes is $5,490,000 per person. This includes a $40,000 increase over the 2016 federal exemption based on an inflation adjustment. Such exemption may be used during lifetime or at death. The marginal rate for gifts and estates of decedents in excess of the exemption amount is 40%. The federal generation-skipping transfer (“GST”) tax exemption also received a similar increase to $5,490,000 per person. Such GST tax exemption may be used during lifetime or at death. The GST tax rate is currently a flat 40%. The filing threshold for federal estate tax is $5,490,000. Each estate with an aggregate value in excess of $5,490,000 is required to file a federal estate tax return, regardless of whether federal estate tax is due. It is also possible to make a decedent’s unused federal estate tax exemption portable to a surviving spouse, but a federal estate tax return must be filed to do so. This relatively new exemption portability opens the door to additional income tax planning, in the form of obtaining a step-up in asset basis at the death of both spouses and use of both spouses’ exemption amounts.
The table below illustrates the recent history of the federal gift and estate taxes.
The annual federal gift tax exclusion remains unchanged in 2017 at $14,000 per donor. Individuals are also able to pay an unlimited amount of tuition and medical expenses directly to a provider on behalf of a third party without any gift tax liability.
|
Tax Year |
Federal Exemption Amount |
Estate and Gift Tax Rate |
Annual Gift Tax Exclusion |
|
2010 |
$5 million, with a possible election for no estate tax in exchange for limited basis step up |
35% |
$13,000 |
|
2011 |
$5 million |
35% |
$13,000 |
|
2012 |
$5.12 million |
35% |
$13,000 |
|
2013 |
$5.25 million |
40% |
$13,000 |
|
2014 |
$5.34 million |
40% |
$13,000 |
|
2015 |
$5.43 million |
40% |
$14,000 |
|
2016 |
$5.45 million |
40% |
$14,000 |
|
2017 |
$5.49 million |
40% |
$14,000 |
B. Washington State Estate Tax Exemption.
The 2017 Washington State estate tax exemption is $2,129,000 per person. This represents an increase of $50,000 over the 2016 exemption based on an inflation adjustment. Washington decedents dying with estates in excess of the Washington State estate tax exemption amount are subject to a 10% to 20% estate tax. On May 17, 2017, the filing threshold for Washington State estate tax was increased to $2,129,000 from $2,000,000. Each estate with an aggregate value over $2,129,000 is required to file a Washington State estate and transfer tax return regardless of whether Washington State estate tax is due. Washington has no gift or GST tax, which presents myriad planning opportunities.
C. Oregon State Estate Tax Exemption
The 2017 Oregon State estate tax exemption remains at $1,000,000 per person. Oregon resident decedents dying with estates in excess of the Oregon State estate tax exemption amount are subject to a 10% to 16% estate tax. Please note that the filing threshold for Oregon State estate tax remains at $1,000,000. Each estate with an aggregate value over $1,000,000 is required to file an Oregon State estate tax return regardless of whether Oregon State estate tax is due. Oregon does not tax lifetime gifts as it has no gift tax so lifetime giving remains an excellent strategy to reduce the donor’s taxable estate for Oregon estate tax purposes.
D. Potential Changes to the Federal Estate Tax
One element of President Trump’s campaign was the goal of repealing the federal estate tax. On April 26, 2017, President Trump announced his proposed tax package, including repeal of the federal estate tax. President Trump has also suggested that the federal estate tax be replaced with a capital gain tax on death. Various other proposals have been made by members of Congress. The administration initially indicated that federal tax reform will be addressed after federal health care reform. The timing and details of any federal tax reform are uncertain at this time.