Did You Know: The Federal Exemption for Estate Tax Doubled with Tax Reform?

Did you know:

The Tax Cuts and Jobs Act doubles the lifetime gift and estate exclusion (The 2018 Unified Exemption) and Generation Skipping Transfer (GST) tax exemption from $5 million to $10 million with the intention of adjusting for inflation ($11.2 million inflation adjusted for 2018). However, in 2026, the lifetime gift and estate exclusion and GST tax exemption drop back to their base amount of $5 million, indexed.

Now that you know – here’s what it means!

Higher exclusions may tempt some individuals to overlook estate tax planning, resulting in missed potential opportunities. It could be a mistake to over-simplify your estate plan in reaction to the new law.

Instead of doing less estate planning, these higher thresholds could be viewed as an opportunity to do more. For example, higher generation-skipping exclusions provide an opportunity for multi-generational wealth preservation planning. Also keep in mind that estate planning is not solely about estate taxes. There are many reasons to examine wealth transfer options that relate to family dynamics and overall asset protection.

And here are the details:

Although there are planning opportunities around this new legislation, there are some things to keep in mind:

  • The law’s sunset means that without further Congressional action, the exemption amount would revert back to the $5 million base which will be indexed for inflation.
  • The portability exclusion is retained under tax reform. This means that upon death, a married individual can pass any unused estate tax exemption on to his or her surviving spouse.
  • The tax bill doesn’t make changes to step-up basis rules which means when you die, your heirs’ cost basis in the assets you leave them are reset to the value when you die.
  • The annual exclusion amount that an individual can give without eating into the lifetime gift tax exemption has not changed by the new tax law. It will be $15,000 for 2018, up from $14,000 in 2017 due to indexing for inflation.

Need help understanding how these changes will impact your estate planning? Start Here.

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CATEGORIES: Featured | Tax, Audit & Accounting

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