With The New Year Come New Limits For the Estate and Gift Tax Exemption

On the campaign trail, President Trump promised to repeal the estate tax aka death tax. That plan failed. But the new tax law, effective since the beginning of the year, significantly reduces the number of estates that will need to pay the tax. It doubles the exemption limit for the estate, gift and generation-skipping taxes set for 2017. Portability remains in effect, as does the marginal estate tax rate of 40 percent.

The limits in 2017 for the estate, gift and generation-skipping tax were $5,490,000 per person and $10,980,000 for a married couple. The new numbers are $11.2 million for an individual and $22.4 million for married couples. The exemption limits will rise annually, reflecting inflation.

The changes, though significant, will affect only a small number of high-value estates. According to estimates by the Joint Committee on Taxation, the number of taxable estates will plummet from 5,000 under the old law to 1,800 under the new law. (For further comparison: At the turn of the millennium, more than 52,000 estates paid the tax. The exemption for the year 2000 was set at $675,000.)

The new tax law has not affected the annual gift tax exclusion. In 2017, if you gave up to $14,000 each to any number of individuals there was no need to inform the IRS. The limit for this year is $15,000 because of inflation.

New law to sunset in 2026

There is an interesting twist to the new tax law: It is scheduled to sunset at the beginning of 2026. The annual tax exemption will then revert back to the 2017 level, albeit adjusted for inflation.

The sunset provision is important to anyone who may have already used up the old estate and gift tax exemption. Individuals with assets worth more than $5.5 million now have an 8-year window to shelter an extra $5.5 million from the IRS. Couples with assets exceeding $11 million can shelter an additional $11 million. Ways to do so would include gifts to a child or grandchild or to an irrevocable trust.

The new law may or may not affect you. But whatever your situation, the beginning of a new year is a good time to revisit your documents. Together with your attorney, you will want to ensure that your estate plan reflects any changes in the law. You will also want to take into account any change in your private circumstances.

By Kevin J. Moore

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.