Understanding the Estate Tax Exemption

The EstateTax is a tax on an individual’s right to transfer property at their time of death.  It comprises a full accounting of everything an individual owns or has an interest in at the time of their death. This may include real estate properties, cash and securities, annuities, trusts, insurance as well as specific assets and business interests.  This accounting of an individual’s assets is based on the asset’s fair market value as of the date of death and not what was paid for the assets when they were purchased.


The estate tax exemption for 2013 was $5,120,000 per person and it increased to $5,250,000 on January 1st, 2014 (it is permanently set for $5,000,000 and indexed annually for inflation).  This means that any assets that an individual owns at their time of death in excess of the exemption amount ($5,250,000 in 2014) would be subject to the estate tax.  For 2014 the federal estate tax rates begin at 18% and increase to 40% when the taxable estate value reaches $1,000,000 ($6,250,000 in total before exemptions are applied). Assets that are transferred from a spouse to the other spouse are not subject to the estate tax.  The IRS provides for an annual gift tax exclusion ($14,000 In 2014) which affords an individual a vehicle via which their taxable estate value can be lowered during their lifetime.

Estate taxes can significantly affect the value of the assets that an individual passes down to their heirs. In cases where non-liquid assets are present (I.e. business interests) estate taxes can result in significant cash flow problems because assets will need to be sold or mortgaged to pay these taxes.  Several strategies can be employed while an individual is still alive to minimize exposure toestate tax while allowing an individual to still control their valuable assets, at garvey & garvey we are prepared to assist you in modeling scenarios to determine which strategies are right for you.

Please don’t hesitate to call us at 412-734-1691 to schedule an appointment to begin discussing your options.