Peloton is pleased to share this article by guest contributor Rodney Retzner with you.  For more information about Rodney and his firm, please see the information at the bottom of this page. 

The Federal Estate Tax, Gift Tax and Generation-Skipping Transfer Tax (“GST”) exemptions are permanently set at $5 million and indexed for inflation back to January 2011. These exemptions for 2015 are $5,430,000.

The full amount of the exemption can be used for sheltering gifts during life or gifts that occur at death.  The top rate for Federal Estate Tax, Gift Tax and GST is 40% for transfers above the $5,430,000 amount.  Portability of unused exemption between spouses is now permanent.  It is also important to note that the annual gift exclusion remains at $14,000 per donor per donee.

With the tax laws permanent and with tax rates finalized, most clients have been and will continue to seek some finality to their estate planning or may assume that things are now complete and no more need be done since the laws are now “permanent.” We urge you not to fall back asleep with respect to the gift and estate tax laws until you have at least had your planning reviewed.

Prior to, and even after 2001, many clients implemented plans that included formula provisions based on the tax laws at the time and the best predictions available.  This formula planning mandates the funding of trusts designed to hold the “tax free” amount and fully utilize the Federal Estate Tax exemption when the first spouse dies, a “credit shelter trust,” with any excess passing as a marital gift (either outright or in trust). The credit shelter trust was typically funded with the maximum amount which can pass free of tax and, with such a large exemption, may mean that 100% of your assets will pass to the credit shelter trust and no assets will pass to the surviving spouse.  Other estate plans leave the maximum tax exempt amount to children from a prior marriage.  In this situation, it is possible that your entire estate will be given to the children from your prior marriage and nothing will remain for the surviving spouse (unless he or she elects to take against your will).  With the exemption and portability made permanent, credit shelter trusts established at the death of the first spouse to shelter assets utilizing that spouse’s exemptions may no longer be necessary; however, there are a variety of reasons as to why such trusts can or should still be utilized as part of an estate plan.

We encourage you to review your existing estate planning documents. If you were to die, how much and how will your assets be distributed to the beneficiaries based on formula clauses used prior to the dramatic changes to the tax laws?

And, by the way, nothing is “permanent” in the law.  Once again Congress is considering a full repeal of the Federal Gift, Estate and GST taxes.  With the right mix in the House, the Senate and the Presidency, a total repeal could happen. The big increase in the exemption has made the revenue raised insignificant compared to government and private costs. This is how the Indiana inheritance  tax was ultimately repealed – eventual “death by a thousand cuts.”  Stay tuned.


Rodney Retzner is the Chair of Krieg DeVault’s Estate Planning and Administration Practice Group. His practice is concentrated in the areas of estate and business succession planning, estate and trust administration and estate and trust litigation.