Estate Planning Tax Updates for 2014

The most recent News Blast from the Probate and Trust Section of the State Bar of Arizona includes the following inflation adjustments announced by the IRS for 2014, which are important for both estate planning and income taxes:

1)      The estate and gift tax exclusion amount will increase to $5,340,000

2)      The generation skipping tax exemption also increases to $5,340,000

3)      The gift tax annual exclusion amount stays at the 2013 level of $14,000 and does not increase next year.

4)       The annual exclusion for gifts to a non-citizen spouse increases to $145,000

5)      Marginal tax rates for taxable income of estates and trusts:

  1. Not over $2,500                15% of taxable income
  2. $2,500-$5,800                    $375 plus 25% of excess over $2,500
  3. $5,800-$8,900                    $1,200 plus 28% of excess over $5,800
  4. $8,900-$12,150                  $3,140 plus 39.6% of excess over $12,150

Remember that the net investment income tax enacted as part of the Affordable Care Act to help offset the cost of Medicare, which went into effect in 2013, applies to trusts and estates. The law imposes a 3.8% tax on “net investment income”, defined as dividends, capital gains, interest, rents and royalties.  For 2014, the tax will be imposed on trust and estate income in excess of $12,150.

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