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George F. Bearup, J.D. Senior Legal Trust Advisor

21-Dec-20

2021 Transfer Tax Exemptions

Take-Away: With 2021 comes some new federal transfer tax exemptions. In the case of annual exclusion gifts there is no change from 2020.  A couple of changes also apply to the income taxation of trusts and estates.

Transfer Tax Exemptions: The key transfer tax exemption changes for 2021 follow.

  • Basic Exclusion Amount: For decedents who die in 2021, and donors who make gifts in 2021, their basic exclusion amount will be $11,700,000.00. That is an increase over 2020’s $11,580,000 basic exclusion amount. Accordingly, a married couple can gift $23.4 million in assets in 2021 without paying a federal gift tax.
  • Generation Skipping Exemption Amount: For generation skipping transfers made in 2021, the GST exemption amount is also $11,700,000 per individual. That is an increase over 2020’s GST exemption amount of $11.58 million.
  • Gift Tax Exemption for Gifts to a Non-Citizen Spouse: The annual federal gift tax exemption for a gift to a non-citizen spouse increases to $159,000.00. [IRC 2523(i)(2).]
  • Estate Tax Installment Payments: For a decedent who dies in 2021, the taxable value to be used for purposes of the special two-percent (2%) rate on deferred federal estate tax payments is up to $1,590,000.00. [IRC 6166.]
  • Special Use Valuation: For a decedent who dies in 2021, and their estate elects to use the special valuation method for qualified property which is part of the decedent’s taxable estate, the aggregate decrease in fair market value of the qualified property pursuant to that election is limited to $1,190,000.00. [IRC 2032A(a)(2).]

Annual Exclusion Gifts: The federal gift tax under IRC 2503(b) for annual exclusion gifts, i.e. gifts of a present interest, the annual exclusion amount remains the same for 2021 as it was for 2020, $15,000 per individual. Direct gifts for the payment of tuition and to pay for medical expenses remain unlimited for 2021. [IRC 2503(e).]

Reportable Gifts from Foreign Persons:  An individual who receives a gift from a foreign person in 2021 will be required to report that gift [using Form 3520] if the gift exceeds $16,815.00. [IRC 6039F.]

Taxation of Non-Grantor Trusts: The income tax brackets for trusts and estates for 2021 remain highly compressed:

  • If taxable income is $2,650.00, the tax is 10% of taxable income;
  • If taxable income is over $2,650.00 but not over $4,550.00, the tax is $265 plus 24% of the excess over $2,650.00;
  • If taxable income is over $9,550.00 but not over $13,050.00, the tax is $1,921 plus 35% of the excess over $9,550.00;
  • If taxable income is over $13,050.00, the tax is $3,146.00 plus 37% of the excess over $13,050.00

AMT: The alternative minimum tax exemption amount for estates and trusts is $25,700.00.00. [IRC 55(d)(1).] Once the trust or estate’s alternative taxable income reaches $85,650.00, the exemption begins to phase out, and it is completely phased out when the alternative minimum taxable income reaches $188,450.00.