By Donald Loose
The Tax Cuts and Jobs Act of 2017, which took effect on January 1, 2018, increased the federal estate, gift and generation-skipping transfer (“GST”) tax exemption amount to nearly $11.2 million for an individual, and $22.4 million for a married couple (from $5.49 million and $10.98 million, respectively, in 2017). The estate and gift tax exemption is a combined amount that applies to an individual’s gifts made during life or assets left at death. At the new levels, according to estimates by the Tax Policy Center, 1,700 estates will owe estate tax in 2018, out of an estimated 2.7 million deaths. In 2017, an estimated 5,500 estates owed the tax. This is about a two-thirds decrease in the number of estates that will be subject to federal estate tax.
The exemption amount is scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amount is scheduled to revert to the 2017 levels, adjusted for inflation. This could, of course, be changed by Congress as the sunset date draws nearer. The highest marginal federal estate and gift tax rates remain at 40%, and the GST tax rate remains a flat 40%.
The tax overhaul didn’t change the rules on “portability,” under which a deceased spouse’s unused exclusion amount is available to a surviving spouse. This means that spouses with a combined estate of up to $22.4 million in value at the time of the survivor’s death will not pay estate tax with the proper planning and estate tax return elections. The exclusion amount is adjusted each year for inflation.
Also beginning January 1, 2018, the annual gift tax exclusion increased to $15,000 from $14,000 (a married couple may make gifts of $30,000 per recipient). This change was due to inflation, and future inflationary adjustments should be expected.