2018 Estate Planning and Tax Updates

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.