Heads-Up – The Estate Tax and Gift Tax Exclusion Amounts Are Changing

The “death tax”, as it is lovingly referred to by many, is going up again. And by “up”, I mean that the exclusion amount that all Americans have at their disposal to avoid paying this tax is increasing. That is a good thing for taxpayers, although as I wrote about earlier this year in March, very few people actually pay this tax.

More formally known as the federal estate tax, it applies to transfers of wealth when a person dies if the value of that “wealth” is more than that person’s exclusion amount. In 2017, Americans dying with more than $5.49 million dollars of assets in their estate would pay an additional 40% tax on every dollar over the exclusion amount. And for those who make substantial gifts during their lifetimes, any gift that exceeds the annual gift exclusion amount ($14,000 in 2017) would decrease that available $5.49 million dollar exclusion by the dollar amount of the gift above $14,000.

For 2018, the federal estate tax exclusion amount is increasing from $5.49 million dollars to $5.60 million dollars, and the annual gift exclusion is increasing from $14,000 to $15,000. The federal estate tax exclusion increase was expected, as the exclusion was indexed for inflation when previous legislation amended the Internal Revenue Code. However, the annual gift tax exclusion has been stuck at $14,000 since 2013, so its increase was somewhat unexpected.

In the grand scheme of things, these increases may seem relatively insignificant. And the tax reform plans brewing in Washington D.C. could change the scheme entirely, especially if the federal estate tax is eliminated. But no matter what happens, there will still be various planning techniques available to clients who want to make lifetime gifts but avoid triggering gift tax liability, transfer significant wealth to future generations without triggering estate tax liability or adverse income tax/capital gains issues, etc.

If you have any questions, please do not hesitate to contact me.

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