Estate and Gift Tax Exemption

Estate and Gift Tax Exemption

One of the biggest changes occurred here, with the taxable estate exemption doubled.

The number of estates predicted to owe tax in 2018 versus 2017 may be cut in half thanks to the change in the estate and gift tax exemption amount.  The new limit, which applies to gifts made during life or assets left at death, has been raised to $11.2 million per individual or $22.4 million per married couple -and will be adjusted for inflation going forward.

And of equal importance, the current laws make no change to the current step-up in basis and portability rules.

In addition to the changes to the lifetime exemption, the annual exclusion limit was bumped up by  $1,000 to $15,000 per person per year.  This amount specifies what can be given away to anyone – family, friend, total stranger – without using any of your lifetime exemption.  Anything above that amount should trigger the filing of a gift tax return, which reduces the amount of your lifetime estate and gift tax exemption.

While the $15,000 per year may seem modest and not worth the effort, it can add up.  A husband and wife can each give this amount to their children and grandchildren each year.  For a family with two married children and five grandchildren, this could mean moving $270,000 out of their taxable estate annually.

Parents or grandparents with a sizeable taxable estate who are healthy and expected to live at least another five years might consider contributing to a 529 for their children or grandchildren.  With this strategy, five years of annual exclusion gifts can be made all at once.  In the family with five grandchildren, this could remove $750,000 from the grandparents’ taxable estate.  The only caveat being that they must survive the five-year period or the unused amount will be pulled back into their taxable estate at death.

See our section on 529 planning for the allowability of up to $10,000 of private K-12 education tuition per year under the new tax laws.

Click below to return to the full 2018 Tax Review:

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