As the year 2018 begins, several changes go into effect that may affect families’ estate planning.
Increase in Annual Gift Tax Exemption
After being stuck at $14,000 for the last several years, the per-person annual gift tax exemption rises to $15,000 for the year 2018. This means that a person may make gifts adding up to less than this amount without having to file a federal gift tax return. A married couple making a joint gift can double this exemption up to $30,000, and if the gift is also to a married couple, it can effectively be doubled again up to $60,000. For gifts above this amount, no tax is immediately due; the gift simply gets reported, and the amount will be subtracted from the giver’s lifetime gift/estate exemption upon their death.
Increase in Lifetime Gift/Estate Tax Exemption
The per-person federal estate tax exemption had been $5 million, with annual inflation adjustments that had brought the exemption to approximately $5.5 million. However, under the Tax Cuts and Jobs Act, the exemption has been doubled to $10 million per person. After the inflation adjustments, the 2018 figure will be approximately $11.2 million per person, which can be doubled up to $22.4 million for a married couple.
However, under current law, this increase is scheduled to expire at the end of 2025, at which time it would revert back to the $5 million (plus inflation) if no other laws are passed.