When someone dies, their estate is not subject to the federal estate tax if the value of their estate is less than the exemption amount. The IRS has released the 2021 federal tax rates. While tax rates didn’t change, the tax bracket income ranges for the 2021 tax year have been adjusted to account for inflation. This applies to the federal estate tax exemption that is charged against the value of an estate when someone dies.
The 2018 Tax Cuts and Jobs Act (TCJA) doubled the lifetime gift, estate and generation-skipping tax exemptions to $11.18 million from $5.6 million and is scheduled to expire in 2025 – but Congress could vote to have the exemption expire earlier.
An estate is taxed up to a 40% rate, depending on your income. For high-income individuals the new 2021 increases in the federal estate tax exemption are significant:
• For someone who passes away in 2021, the exemption amount is now $11.7 million, up from $11.58 million for 2020
• For married couples there is a combined exemption of $23.4 million
The 2021 the annual gift tax exclusion remains at $15,000. This means that someone can give $15,000 to any person in a calendar year ($30,000 for a married couple) without having to file a federal gift tax return and without it counting toward their lifetime exemption amount.
The portability exemption does not change in 2021. Portability means that when one spouse dies, the balance of the tax exemption is transferred to the remaining spouse. The Illinois estate tax is not automatically portable between married couples. When the second spouse dies, the estate can only use one spouse’s exemption. As trust attorneys, we often recommend couples establish a marital trust to reduce and avoid estate tax.
Are you concerned about the increase in the federal estate and gift tax rate and a potential decrease in the exemptions in the future, now is the time to discuss your estate and gift tax exemption through lifetime gifts with an estate planning attoney.
Do you have questions about estate planning? Our experienced estate planning lawyers in Lombard, Illinois can advise you on the best options to protect your assets and loved ones. To talk to an estate planning attorney contact the Estate & Probate Legal Group at 630-864-5835.
We provide legal services in Cook, DuPage, Kane, Lake, and Will counties.