As discussed previously, the 2014 unified credit for federal estate and gift tax has been raised to $5.34 million per person. But what does that all mean?
The unified credit is the term given to the total amount a person may exclude from federal estate and gift tax. In other words, a person may transfer assets during their lifetime (i.e. gifts) or after (i.e. estates). The amount a person may transfer via only gifts, only estates, or a combination of the two is the unified credit. It is only when the credit is exceeded that federal estate and gift tax is owed. In other words, if the combination of your gifts and estate totals $6.34 million, federal estate and gift tax will be owed on $1 million ($6.34 million minus $5.34 million 2014 unified credit).
Portability remains a possibility with spouses. Remember that portability requires the estate of the deceased spouse to file an estate tax return, even if no tax is owed. The estate tax return is due nine months after the death, with a six month extension permitted.
Also remember that the annual gift tax exclusion is different than the unified credit. You can gift up to $14,000 per person without encroaching upon the unified credit.
A good article that goes over the above and a few other details is here. If you are a Nebraska or South Dakota farmer or rancher considering business transition, feel free to contact us with any questions you may have about the federal estate and gift tax.