Important Changes to the Federal Estate and Gift Tax for 2018

The Tax Cut and Jobs Act passed by Congress and signed into law at the end of 2017 contains some very significant changes to the federal estate and gift tax laws. For one, the unified credit for estate and gift tax–the amount you can give cumulatively during your lifetime or which you can leave at your death without incurring an estate tax–was doubled.  The increased, inflation-adjusted exemption amounts to approximately $11.2 million for an individual, or a combined $22.4 million for a married couple, and are effective for estates of decedents dying, and gifts made, after December 31, 2017.  These increased exemption amounts also apply to the generations skipping transfer tax (“GST”).  Additionally, the annual federal gift tax exclusion was raised from $14,000 to $15,000 for 2018, which means that an individual can give up to $15,000 annually per person, without the gift reducing one’s unified credit.

Of course, the aforementioned doubling of the exemptions is great news for those with large estates, but the new law is scheduled to expire on December 31, 2025, after which the estate, gift and GST tax exemption amounts would revert to the prior $5 million amounts, plus inflation adjustments.  Moreover, it is quite possible that another Congress could amend the law prior to that.  In the interim, for those clients who are willing and able to make lifetime gifts, it makes sense to do so before the law changes. 

Before celebrating the new legislation, clients should be reminded that New York State has its own estate tax, as do most other states, and the current exemption is limited to $5,250,000.  New York’s estate tax exemption is scheduled, on January 1, 2019, to match the federal exemption.  However, it is not clear that New York will allow this to happen.  It is imperative, then, for couples to continue to conduct estate planning, most simply through creating credit shelter trusts under their wills, so as to avoid the New York estate tax.  While the New York estate tax rate is not as large as the federal, the top rate still amounts to 16%.  Credit shelter trusts are also extremely useful in protecting assets from long-term health care costs, from subsequent spouses, and from being mishandled or squandered if the surviving spouse becomes susceptible to undue influence.  Of course, single clients whose assets exceed the New York state exemption should also continue to engage in estate planning, by establishing trusts.  

In light of the changes to the federal estate and gift tax laws, it is important for clients to conduct a comprehensive review of their estate plans with an experienced attorney who is knowledgeable in the areas of estate planning and taxation.


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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.