The federal government recently announced that for 2018 the estate and gift tax exemption is $5.6 million per individual. That’s 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.
Speak with a qualified estate planning attorney about the $11.2 million number per couple, because it’s not automatic. An unlimited marital deduction lets you leave all or part of your assets to your surviving spouse free of federal estate tax. However, to use your late spouse’s unused exemption (called “portability”), you must elect it on the estate tax return of the first spouse to die—even if there’s no tax due. If you don’t know about portability and how to elect it, your heirs could see a surprise federal estate tax bill. If you live in a state or DC that imposes separate estate and/or inheritance taxes, there’s even more at risk because these taxes can accrue with the first dollar of an estate.
Reference: Forbes (October 19, 2017) “IRS Announces 2018 Estate And Gift Tax Limits: $11.2 Million Per Couple”