The estate tax is a tricky beast. Just 15 years ago, Federal estate taxes kicked in at $650K of an estate’s value. This may seem like a large sum, but consider it included all that you leave behind. Your home, saving, retirement accounts, and perhaps the biggest item, life insurance. Biggest, because even if you are just starting out, newlyweds with no savings yet might easily decide to each have $1M life insurance policies. Just putting this number into perspective.
The exemption amount grew each year, up to $3.5M in 2009, and then the tax was repealed for 2010. As a Klingon might have said “This is a good year to die.” It might have been, expect the step up in basis was suspending that year so beneficiaries of those who passed in 2010 were in a unique position, having to research basis for their windfall. 2011 saw the return of the estate tax with a $5M exclusion, and a generous ‘second to die’ provision, in effect, allowing the spouse to pass along the $5M from the first spouse for a $10M total. In 2013, the exclusion was $5.25M.
Now, the 2015 proposed budget….. let me say this, in 2010 when congress was debating what to do, I suggested they pick a number, and offer a modest inflation rate, but stop the crazy swings up and down. They don’t listen. I am seeing a proposal to roll back the exclusion to the 2009 number of $3.5M, no inflation adjustment. It keeps the spouse portability, fortunately.
I see this as upsetting to those it impacts, but I’m sure that couples with $7M in gross assets including insurance, aren’t going to get much sympathy from my readers. If you fall near this number, it’s time to start gifting the $14K/yr to your loved ones.
This bit of new code could have been avoided. The budget could have simply frozen the number at 2014 levels $5.375M (I believe) and stop messing around. And for Pete’s sake, stop calling any code “permanent.” That’s just nonsense.