Friday April 19, 2024

1.3.2 Estate Applicable Exclusion Amount

Applicable Exclusion

Unified Credit and Applicable Exclusion Amount:   The Estate Tax Rate and Estate Exclusion schedule is given.

Estate Tax Calculation:   The estate tax is calculated by determining the gross estate, adding in taxable gifts and tax paid on gifts within three years of death, subtracting costs and any marital and charitable deductions and then determining the tax.

Unified Credit and Exclusion Schedule
The Estate Tax Rate and Estate Exclusion schedule is as follows:

 YearTop Estate Tax RateEstate Exclusion
2001
55%
   $675,000
2002
50%
 $1,000,000
2003
49%
 $1,000,000
2004
48%
 $1,500,000
2005
47%
 $1,500,000
2006
46%
 $2,000,000
2007
45%
 $2,000,000
2008
45%
 $2,000,000
2009
45%
 $3,500,000
2010
35%
 $5,000,000*
2011
35%
 $5,000,000
2012
35%
 $5,120,000
2013
40%
 $5,250,000
2014
40%
 $5,340,000
2015
40%
 $5,430,000
2016
40%
 $5,450,000
2017
40%
 $5,490,000
2018
40%
 $11,180,000
2019
40%
 $11,400,000
2020
40%
 $11,580,000
2021
40%
 $11,700,000
2022
40%
 $12,060,000
2023
40%
 $12,920,000
2024
40%
 $13,610,000

Estate Tax Calculation
The estate tax is calculated by determining the gross estate, adding in taxable gifts and tax paid on gifts within three years of death, subtracting costs and any marital and charitable deductions and then determining the tax. If the taxable estate produces a tax less than the applicable credit, there is no tax payable. However, if the taxable estate produces a tax that exceeds the estate credit, then the tax will be calculated and must be paid no later than nine months after the demise of the decedent.


Example 1.3.2A Estate Tax Calculation

Mary Jones passes away. Her gross estate is $4 million and her spouse predeceased her. Her will directs payment of expenses and costs ($100,000) and a bequest to charity of $500,000. The balance is transferred to her children. Her gross estate is reduced by the $100,000 costs and the $500,000 charitable deduction. Mary's taxable estate is less than the estate exclusion. Thus, the estate credit will offset the tentative tax and her estate will pay no federal estate tax. However, in some states a state inheritance tax may be payable.

Related Topics on Estate Applicable Exclusion Amount

1.2.3  Gift Exemption:    Prior to 1977, there was a $30,000 exemption for gifts. Gifts in excess of this amount required payment of gift taxes under the then existing tables.

1.2.4  Charitable Deductions:    Gifts to qualified exempt charities are deductible for gift tax, as well as income and estate tax purposes. Qualified charities include government organizations, charities that receive broad public support, religious organizations and other public entities. There also is an unlimited charitable gift tax deduction for transfers to private foundations. Reg. 25.2522(a).

1.3.4  Marital Deduction:    Since 1981, there has been an unlimited marital deduction. Individuals who are married may transfer any assets outright to a surviving spouse, with the entire transfer qualifying for a marital deduction. Since it is desirable to preserve the value of the applicable exclusion amount for the first spouse to pass away in a bypass or family trust, a common plan is to fund a bypass trust to the maximum amount and transfer the balance of the estate outright or in trust to the surviving spouse.
1.3.6  Estate Tax Calculation and Form 706:    The calculation of estate tax is a cumulative process. That is, all prior gifts and prior taxes payable under current schedules are considered when calculating the current estate tax liability.

      Quiz-Basic



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