By: Donald W. Paule
The Tax Cuts and Jobs Act, signed into law by President Trump on December 22, 2017, becomes effective on January 1, 2018.
While most of the news reports regarding the Act have focused on the changes to the income tax laws, there are substantial changes to the estate and gift tax and the generation skipping transfer tax provisions of the Internal Revenue Code.
As the Act was being considered by Congress, there was discussion about repeal of the estate tax. That repeal did not occur. The Act, however, did substantially increase the lifetime exclusion amount for estate and gift tax purposes and the exemption amount for generation skipping transfer tax purposes. In 2012, the exclusion amount for estate and gift tax and the exemption amount for GST tax was set at $5 million, indexed for inflation. Under the current law, this lifetime exclusion amount was scheduled to increase to $5.6 million on January 1, 2018. The new Act increases this exclusion to $10 million. Indexed for inflation, this means that the exemption in 2018 will increase to approximately $11.2 million per person (or $22.4 million for married couples).
The substantial increases in the exclusion and exemptions amounts are tempered by the fact that this change in the law is temporary. The Act extends the increased exclusion and exemption amounts through December 31, 2025, and restores the current estate and gift tax lifetime exclusion and GST tax exemption amounts starting January 1, 2026.
The estate, gift, and GST tax rate remains at 40% for all amounts transferred in excess of the lifetime exclusion and the GST exemption amount. For income tax purposes, the rules providing for step-up in the basis of assets transferred at death and the carryover of basis for assets transferred by gift during lifetime have not changed.
What this means for individuals and married couples is that where they may have, in the past, had an estate that was subject to an estate or generation skipping tax, that tax liability may no longer exist. While this change in the law is temporary, where estate, gift, and GST tax considerations may no longer be of a concern, a review of existing estate planning documents should be completed to be certain that your estate planning documents provide for the disposition of your property as you intend and are not more complicated than you need.
For individuals or couples with significant wealth, the increase in estate and gift tax lifetime exclusion and GST exemption amounts offer significant planning opportunities. Those include:
- Making gifts to individuals or to new or existing irrevocable trusts which utilize the additional estate and gift tax lifetime exclusions.
- Making gifts to new or existing irrevocable trusts which will utilize the increased GST exemption amount.
- Considering allocation of the additional GST exemption amount to trusts to which transfers were previously made but which under the current law are not GST exempt.
Contact an attorney at Paule, Camazine & Blumenthal, P.C. to discuss how the new estate and gift tax laws could impact your estate plan.
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