New Tax Law Provides Major Estate and Gift Planning Opportunities

Kelley Drye Client Advisory

On December 20, 2017, Congress delivered to President Trump the Tax Cuts and Jobs Act (the Act”), which includes provisions that affect the Federal estate, gift and generation skipping transfer, or GST”, taxes. 

Highlights of the Act

Estate and gift taxes remain unified, with lifetime taxable gifts reducing your estate tax exemption.  The 2018 estate and gift tax exemption of $5.6 million for each individual doubles to $11.2 million ($22.4 million for a married couple), plus an annual inflation adjustment beginning in January 2019.  The tax rate for gift or estate transfers that exceed the exemption amount remains at 40%, which is the same tax rate which has been in effect since 2012.

It is important to be aware that residents of certain states that have their own estate tax, such as New York, may be subject to higher state estate taxes than planned unless the state acts to revise the state’s estate tax law.  For instance, a New York resident who dies in 2018 with a Will that fully funds her credit shelter trust with $11.2 million will result in a New York State estate tax in excess of $1.25 million!

The GST tax is an additional tax on transfers for the benefit of persons who are more than one generation removed from the grantor or decedent (e.g., grandchildren).  Like the estate and gift tax, the GST tax provides for $11.2 million exemption beginning in 2018 (plus an annual inflation adjustment beginning in 2019) per person.  The maximum tax rate for GST transfers that exceed the exemption amount is 40%, maintaining the same tax rate in effect since 2012. 

Portability, or a surviving spouse’s ability to use his or her deceased spouse’s unused estate and gift tax exemption, remains in effect.  While portability provides post-death planning opportunities, it is not a replacement for proper estate planning because its benefits are limited.

Because the estate, gift and GST exemptions will likely increase annually due to the inflation adjustment, you should review your estate plan on a regular basis to determine how best to utilize your annual exclusion ($15,000 in 2018) and any additional estate, gift or GST exemption.

Similar to the Economic Growth and Tax Relief Reconciliation Act of 2001, many of the provisions of the Act will sunset”, or expire after 2025.  As such, unless Congress acts before then, the current law in effect in 2017 will once again become the law in 2026.

For a detailed analysis on The Act, please click here.