HOW MUCH CAN AN
PASS FREE OF THE
FEDERAL ESTATE TAX?
By Larry Parman
OKLAHOMA ESTATE PLANNING ATTORNEY
The federal estate tax parameters are applicable to citizens of all 50 states. You
may have heard that people in different states have different levels of tax
responsibility, so it is understandable that some individuals are looking for
Though the vast majority of states do not collect state level estate taxes, there are
states that have their own estate taxes. Clearly, people who live in these states
have an added level of concern. In
many cases the amount that is
excluded on the state level is lower
than the federal estate tax exclusion.
The good news for people in Oklahoma
is that we no longer have a state level
estate tax. We had an estate tax up
until 2009, but it is no longer in place.
However, you are exposed to the
federal estate tax as an Oklahoma citizen if the amount of your assets exceeds
the amount of the federal estate tax exclusion.
HOW MUCH IS THE FEDERAL EXCLUSION?
At the federal level, a $5 million exclusion was put into place for the 2011
calendar year. Under laws that existed at that time the same exclusion would
hold sway in 2012, but there would be an adjustment for inflation. This
adjustment was applied, and in 2012 there was a $5.12 million exclusion.
At the end of 2012 there was uncertainty with regard to the estate tax exclusion.
The parameters described above were in place because of a tax relief act that was
passed at the end of 2010. That measure was scheduled to expire at the end of
How Much Can an Oklahoma Resident Pass Free of the Federal Estate Tax? www.ParmanLaw.com 2
After the expiration the estate tax exclusion would go down to $1 million. This is
assuming that no legislative measures were passed that would change the lay of
But there was a piece of legislation passed at the very end of 2012 that we are
now calling the American Taxpayer Relief Act of 2012. It allows the estate tax
exclusion to stay along the same path that started in 2011 with a $5 million
figure adjusted annually for inflation.
This is the back story. In 2014 the estate tax exclusion is $5.34 million, and this
figure is in place after another inflation adjustment was applied at the beginning
of this year.
There is no scheduled expiration for these currently existing parameters. There
is a provision in place that allows for ongoing inflation adjustments on an
IS THIS ARRANGEMENT PERMANENT?
As stated above there is no expiration or sunset date for the parameters that are
in place at the present time. This is a deviation from what we traditionally see
the federal government do. For this reason some people are calling the current
estate tax parameters permanent.
However, this is really not an accurate description. Viewing the current estate
tax parameters as truly permanent can actually be quite dangerous because
people may gain a false sense of security.
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As we pointed out in the previous section,
legislative changes can alter existing laws. The
estate tax parameters are definitely subject to
Estate planning is an
change. In fact, a significant change has already
ongoing process. It is been proposed by the White House. The White
not a "one and done" House budget proposal for 2014 includes an
kind of deal. Life does increase in the federal estate tax that would be
not stand still, and it is implemented in 2018.
likely that your existing
This proposal would set the clock back to 2009.
estate plan will need
During that year the federal estate tax exclusion
was $3.5 million, and the top rate of the tax was
over the years.
45%. We have a 40% maximum rate right now,
and as we have already made clear the amount of
the federal estate tax exclusion in 2014 is $5.34
The proposal outlined above may or may not come to fruition. It is certainly
something to keep a close eye on if you are in possession of wealth that hovers
somewhere in the vicinity of $3 million to $6 million or more.
Whether this proposal is actually adopted or not, you should certainly be aware
of the fact that tax laws can and do change. Estate planning is an ongoing
process. It is not a "one and done" kind of deal. Life does not stand still, and it is
likely that your existing estate plan will need ongoing adjustments over the
Laws can change, and your own financial situation can improve dramatically.
Your estate plan may have been constructed when you were not exposed to the
estate tax. If you do become exposed you must take immediate action to revise
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your plan. Every day that you spend with an obsolete plan is a day that you are
risking perhaps millions of dollars unnecessarily.
UNLIMITED MARITAL DEDUCTION
When you are considering how you want to utilize your $5.34 million estate tax
exclusion you should understand that you don't need to use any of it to give your
spouse an inheritance. Under the
tax code you may bequeath any
amount of property to your spouse
free of the estate tax because of the
unlimited marital deduction.
You do have to be married to an
American citizen to take advantage
of this deduction.
If your assets exceed $5.34 million in value your financial legacy is at risk.
Fortunately you do not have to resign yourself to a 40% levy on everything that
exceeds this amount.
There are smart legal strategies that you may employ to minimize your exposure.
You can find out about them by consulting with a licensed estate planning
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Internal Revenue Service
How Much Can an Oklahoma Resident Pass Free of the Federal Estate Tax? www.ParmanLaw.com 6
About the Author
After helping his own family deal with a lengthy probate and a battle with
the IRS following his father’s death in a farm accident, Larry made a
decision to help families create effective estate plans designed to reduce
taxes, and minimize legal interference with the transfer of assets to one’s
heirs, and protect his clients’ assets from predators and creditors.
Following a dozen years in the investment banking and financial services
business, in the mid-1980s Mr. Parman formed a law firm that gives
families the peace of mind that comes from having created a premier
estate and financial plan.
After forming his law firm in 1984, he offered a series of public and
private seminars to inform the public about using a Living Trust as the
foundation of a family’s estate plan. Today, Parman & Easterday is one of the leading business and
estate planning law firms in the Midwest. The firm’s primary focus is on business and estate planning,
elder law, asset protection, and providing effective estate planning solutions for clients. Today, the
firm’s premier estate plan design is referred to as a Legacy Wealth Plan.
Mr. Parman is a frequent guest on the radio and can be seen on television talk shows explaining the
importance of proper estate planning. Prosperity Productions selected Mr. Parman as a featured
speaker in a nationally-recognized educational video on Living Trusts. He is the author of numerous
published articles on financial and estate planning matters and the co-author of two books, Estate
Planning Basics: A Crash Course in Safeguarding Your Legacy and Guiding Those Left Behind in
Oklahoma: Settling the Affairs of Your Loved Ones.
Mr. Parman is a member and Fellow of the American Academy of Estate Planning Attorneys. He is also
a member of the Oklahoma and Missouri Bar Associations, the American Bar Association, and the
Oklahoma City Estate Planning Council.
OVERLAND PARK, KS OKLAHOMA CITY, OK
10740 Nall Avenue, Suite 160 13913-B Quail Pointe Drive
Overland Park, KS 66211 Oklahoma City, OK 73134
Phone: (913) 385-9400 Phone: (405) 843-6100
Fax: (913) 385-9422 Fax: (405) 917-7018
How Much Can an Oklahoma Resident Pass Free of the Federal Estate Tax? www.ParmanLaw.com 7