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On October 21, 2015, the IRS released Rev. Proc. 2015-53, which sets forth the effect of inflation on certain tax items in 2016, including exemption and exclusion amounts for estate, gift and generation-skipping transfer (“GST”) tax. A copy of Rev. Proc. 2015-53 can be found here: https://www.irs.gov/pub/irs-drop/rp-15-53.pdf.

In 2016, the federal estate/gift tax exemption amount will increase by $20,000 to $5,450,000 (in 2015 this amount was $5,430,000), reduced by prior gift tax exemption used. The GST tax exemption amount also increased to $5,450,000 (in 2015, this amount was also $5,430,000), reduced by prior GST tax exemption used. These exemption amounts are indexed for inflation annually going forward, and therefore will presumably increase in future years. The tax on assets in excess of the exemption amounts is currently 40%.

In addition, each individual has an “annual exclusion” amount that he or she can give away to each person per year without using any of his or her gift tax exemption (certain requirements must be met for the gift to qualify for the annual exclusion). The annual exclusion amount is indexed for inflation annually. The annual exclusion amount in 2016 continues at $14,000 per person (or $28,000 per person if the donor is married and the couple elects to “split” gifts), the same amount as it was for the past three years.

In 2016, the annual exclusion from tax on a gift to a spouse who is not a United States citizen increased by $1,000 to $148,000 (the 2015 exclusion amount in 2015 was $147,000). Gifts to a spouse who is a United States citizen remain completely deductible for gift tax purposes.

As always, payments of tuition and medical expenses made directly to the education or health care provider do not require the use of your annual exclusion amount or your gift tax exemption.

If you are interested in learning about possible gifting opportunities, or if you want to discuss how the increased exemption amounts may impact your own estate planning, please contact your HTT&S lawyer.