The headline catcher is that the Federal Estate Tax is $5 million, but there are other exemptions that are notable. The lifetime gift tax exemption is now $5 million. The annual gift tax exclusion amount remains at $13,000 for 2011 and is indexed to inflation.
Just to explain, there are two gift taxes. The annual gift tax exclusion is the $13,000, which is the amount you can give, per year, per person. So, if husband and wife both want to give the same person a $13,000 gift, they may and that would total $26,000 per year. If the gift exceeds the $13,000 limit, every dollar over $13,000 is taxed and must be reported on a gift tax return (form 709).
The other gift tax is a lifetime exemption and is currently $5 million. So, that means you are allowed to give away $5 million over your lifetime. This is total, not per beneficiary. If you give $1 million to one of your kids, when you die you only have $4 million of exemption remaining. If you gift more than $5 million during your lifetime, every additional dollar will be taxed at 35%.
Additionally, although the Federal Estate Tax exemption amount is $5 million, the Illinois legislature passed, and Governor Quinn enacted a state estate tax exemption amount of $2 million. So, although you can die with $5 million in assets and not owe any Federal Estate Tax, you will have to pay the Illinois Estate Tax on $3 million, which is taxed at
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