How to Manage Estate and Gift Taxes

The Tax Cuts and Jobs Act, which took effect on January 1, 2018, increased the federal estate, gift, and generation-skipping transfer (“GST”) tax exemption amounts to nearly $11.2 million for an individual, and $22.4 million for a married couple, from $5.49 million and $10.98 million, respectively, in 2017. These exemption amounts are scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels, adjusted for inflation. The highest marginal federal estate and gift tax rates remain at 40%, and the GST tax rate remains a flat 40%.

“Portability” of a deceased spouse’s unused exclusion amount is available to a surviving spouse, meaning spouses with a combined estate of up to $22.4 million in value at the time of the survivor’s death will not pay estate tax with the proper planning and estate tax return elections. The exclusion amount is adjusted each year for inflation.

Also beginning January 1, 2018, the annual gift tax exclusion increased to $15,000 from $14,000 (a married couple may make gifts of $30,000 per recipient). This change was due to inflation, and future inflationary adjustments should be expected.