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Estate and Gift Tax Limits Increase for 2018, Says the IRS

Published December 1, 2017 by Brady Cobin Law Group, PLLC

Inflation is the primary reason for increases in the 2018 estate and gift tax exemptions.

After months of speculation about whether or not the estate and gift tax exemption would increase, the numbers are now official. The estate and gift tax exemption for 2018 is $5.6 million per individual, an increase from $5.49 million in 2017.

As a result, a person can leave $5.6 million to his or her heirs and pay no federal estate or gift tax. A married couple will be able to protect $11.2 million from federal estate and gift taxes.

The annual gift exclusion amount is $15,000 for 2018. That’s an increase from $14,000, where it has been since 2013.

Forbes warns in its recent article, “IRS Announces 2018 Estate And Gift Tax Limits: $11.2 Million Per Couple,” that tax reform legislation could change this.

President Trump’s tax reform framework proposes the elimination of the federal estate tax. However, that’s not a lock. The latest news reports that estate tax repeal will end up being scrapped, as Congress focuses on lowering the corporate and individual income tax rates.

This means that the wealthy will need to still plan around the estate tax and reduce their estates with lifetime wealth transfer strategies to dip below the new threshold and avoid the 40% federal estate tax. A couple who’s used up every dollar of their exemption before the increase, now can count on another $220,000. If they’ve been planning, and they’ve used up their lifetime exclusion, they can make gifts to trusts and other vehicles already in place. For instance, with a dynasty trust for their children, they may add another piece of their business or cash. Alternatively, they can consider new strategies.

In addition, individuals can apply the $15,000 annual exclusion amount to give away $15,000 to as many individuals as desired. A husband and wife can each make $15,000 gifts, so a couple could make $15,000 gifts to each of their six grandchildren, for a total of $180,000. Lifetime gifts beyond the annual exclusion amount, count towards the $5.6 million combined estate/gift tax exemption.

A few key points: you’ll need to speak with an estate planning attorney when dealing with the $11.2 million exemption per couple, because it is not an automatic thing. Yes, the unlimited marital deduction permits one spouse to leave all or part of their assets to a surviving spouse free of federal estate tax. However, if the surviving spouse wants to use the late spouse’s unused exemption, which is considered to be portable, it must be selected on the estate tax return of the first spouse to die—even if no estate tax was due. “Portability” must be planned for, and an estate planning attorney will be needed to guide you through the process. You don’t want your heirs to get a large federal estate tax bill because of overlooking this detail.

Those who reside in a state or DC where state estate and/or inheritance taxes are due, should be aware that taxes may accrue with the first dollar of an estate. Delaware repealed its estate tax starting on January 1, 2018, but there are still 17 states with estate taxes and a number with inheritance taxes.

Reference: Forbes (October 19, 2017) “IRS Announces 2018 Estate And Gift Tax Limits: $11.2 Million Per Couple.”

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