What Are the 2016 Federal and Massachusetts Estate and Gift Tax Filing Figures?

The Internal Revenue Service has recently announced that in 2016 the federal estate tax exemption will rise from $5,430,000.00 to $5,450,000.00 per person. (Under current law, this figure is adjusted annually for inflation.) Married couples can get the benefit of two exemptions, so in 2016 the total federal estate tax exemption per couple can be $10,900,000.00. The top estate tax rate on amounts above the exemption is 40%.

Under a fairly new concept known as portability, the surviving spouse in some situations can use the unused exemption of the first spouse to die. Portability requires, in part, the timely filing of a federal estate tax return for the first spouse to die.  Unfortunately, the surviving spouse cannot use the deceased spouse’s unused exemption after a remarriage.

Few estates are expected to owe any federal estate tax in 2016, so the federal estate tax is no longer the biggest concern for many wealthy U.S. citizens who want to avoid taxes on wealth they leave behind to their heirs. The focus for many wealthy U.S. citizens has changed to minimizing capital gains taxes.

Although some state estate tax filing figures throughout the nation are being increased, there is no change planned for Massachusetts residents.  The Massachusetts estate tax still begins at a taxable estate of $1,000,000.00, with a minimum tax of $33,200.00.  Oddly enough, the tax is largely calculated through the preparation of a 1999 Federal Estate Tax Return, a  copy of which is on the Commonwealth’s website.  Persons who are not Massachusetts residents but own real estate in Massachusetts are affected by this tax, as well as an unrecorded Massachusetts estate tax lien that arises by operation of law.

The Internal Revenue Service has also announced that in 2016 the annual gift exclusion will remain $14,000.00 per recipient. The provision sets the highest amount that an individual can give on an unreportable tax-free basis, without affecting the gift-giver’s federal estate tax exemption, to any person who isn’t the gift-giver’s spouse, or to an unlimited number of persons.

Transfers or gifts between spouses are usually tax-free, but not always. Whether the gift is tax-free is based on whether the spouse who is receiving the gift is a U.S. citizen. A spouse who is a U.S. citizen can receive unlimited gifts, but a spouse who is not a U.S. citizen will be limited to receiving $148,000.00 in 2016.

Gifts made in excess of the $14,000.00 or $148,000.00 rules require the filing of a federal gift tax return, and make use of part or all of the gift-giver’s federal estate tax exemption.  There is no gift tax in Massachusetts, so there is no filing requirement regarding gifts with any Massachusetts governmental entity.