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President Obama's 2015 Budget Proposals for Estate & Gift Tax

On March 4, the President unveiled his fiscal year 2015 budget proposals, totaling $3.9 trillion. The overall emphasis in his proposal was creating incentives for lower and middle income individuals while curing tax preferences for higher income individuals and businesses. Not new to the proposal was the President's plan to lower the estate, generation-skipping transfer ("GST") and gift tax exemptions to their 2009 levels starting in 2018.

Currently, the maximum unified estate and gift tax rate is 40%, with an inflation-adjusted exclusion of $5 million for estates of decedents dying after December 31, 2012 (currently $5,340,000). The President would like to increase the top tax rate to 45% and lower the exclusion amount to $3.5 million for both estate and GST taxes and $1 million for gift taxes.

The budget proposes to curb the effectiveness of irrevocable life insurance trusts (and other annual exclusion trusts) by only allowing $50,000 annual gift tax exclusion per donor (rather than allowing these types of gifts to qualify for the current gift tax annual exclusion of $14,000 per donee). In other words, a donor's transfers in a single year in excess of a total amount of $50,000 would be taxable, even if the total gifts to each donee did not exceed $14,000.

Further, the proposal would eliminate all zeroed-out grantor retained annuity trusts ("GRATs") and require a minimum ten (10) year term for them. The duration of GST exemptions would be limited to 90 years, thus affecting Dynasty Trusts. Distributions from Health and Education Exclusion Trusts ("HEETs") would become subject to GST taxes. In addition, the proposal would limit the effectiveness of sales to grantor trusts by requiring a portion of the property sold to be included in the grantor's estate for federal estate tax purposes.

The full budget proposal can be found here. It is important to note that the suggestions contained within the budget are just that - suggestions. If any of the provisions are enacted, then you should speak with your trusts and estates lawyer immediately to discuss any necessary changes to your existing estate plan. If you do not have a plan, but would like to know more about creating one, contact a McBrayer trusts and estates lawyer today.

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Terri R. Stallard is a Member of McBrayer, McGinnis, Leslie & Kirkland, PLLC and practices from the Lexington and Louisville offices. Ms. Stallard concentrates her practice in the areas of estate planning, trust and estate administration, and charitable planning. She is licensed to practice law in Kentucky, Georgia, and Tennessee, and in the U.S. Tax Court. She can be reached at tstallard@mmlk.com or (859) 231-8780, ext. 258.

This article is intended as a summary of federal and state law and does not constitute legal advice.

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