Taxation

The Taxpayer Relief Act of 1997 (H.R. 2014) was signed by President Clinton on August 5, 1997. The key provisions that we believe will affect gift and estate calculations are listed below. (Editor's note: Many provisions of the Taxpayer Relief Act of 1997 were superceded by The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and/or The Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA)).

Tax-free income is earned income that is not subject to income tax.

A taxable gift is a transfer of assets from one person to another that is subject to gift tax. The federal annual gift tax exclusion in 2015 allows every person to transfer up to $14,000 per year to each of any number of other people (the $14,000 is indexed for inflation and may change in future years). Transfers above this amount are taxable gifts.

The unlimited marital deduction is the transfer tax deduction available for qualifying transfers between spouses. There is no limit to this deduction, so there is never any transfer tax on qualifying transfers between spouses, no matter how large the transfer.

For a transfer between spouses to qualify for the unlimited marital deduction, there must be no nondeductible terminable interest in the transfer. This means that when the receiving spouse's interest in the transfer terminates, no other person may continue to hold an interest in the property.

On May 28th, 2003, President Bush signed into law the Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA). The law makes no changes that directly affect deferred giving arrangements. However, it does enact reductions in the individual tax rates. Highlights of JGTRRA that may be of interest to gift planners include a reduced capital gains tax rate, reduced dividend tax rate and acceleration of the reductions in marginal income tax rates that were already scheduled.

On May 28th, 2003, President Bush signed into law the Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA). The law makes no changes that directly affect deferred giving arrangements. However, it does enact reductions in the individual tax rates. Highlights of JGTRRA that may be of interest to gift planners include a reduced capital gains tax rate, reduced dividend tax rate and acceleration of the reductions in marginal income tax rates that were already scheduled.

The State Death Tax Credit Table below is used to determine the amount of state death taxes assessed against an estate that can be used as a credit against the federal estate taxes assessed against the same estate. One dollar of credit reduces the federal estate tax by one dollar.

Gift tax credit schedule under 2001 and 2010 Tax Acts

The Economic Growth and Tax Relief Reconciliation Act of 2001 enacted a schedule of federal estate tax and gift tax rate reductions that apply to tax years from 2002 to 2010. The Act repeals the federal estate tax as of 2010, but provides for the continuation of the gift tax, so the 2010 schedule below applies to federal gift tax only. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJC) created a new unified federal estate and gift tax schedule for 2011-2012. The American Taxpayer Relief Act of 2012 made permanent a revised and still unified federal estate and gift tax schedule for 2013 and beyond. Unified Gift and Estate Tax Rate Schedule: 1988 -2001

The schedule below applied for 1997 -2001 and then was superseded by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) for 2002 – 2010. However, EGTRRA included a sunset provision that absent a change in tax law, would cause gift and estate tax credit amounts to revert to the schedule below. This potential reversion has been postponed to at least 2013 by the Unemployment Insurance Reauthorization, and Job Creation Act of 2010.