On December 22, 2017, President Trump signed the much-anticipated Tax Cuts and Jobs Act of 2017 (“TCJA”). The TCJA makes many significant changes to the Internal Revenue Code including changes to the estate, gift and generation-skipping transfer taxes.
Although a repeal of the estate tax was part of the House of Representatives’ Bill, the TCJA does not eliminate federal estate, gift and generation-skipping transfer taxes. However, despite the fact that the estate, gift and generation-skipping transfer taxes live on, the TCJA does provide for some welcome relief for high net worth individuals, in particular, business owners and others with large, but illiquid estates.
Most significantly, the TCJA doubles the estate, gift and generation-skipping transfer tax exemptions to approximately $11,200,000 per person (up from $5,600,000 per person), effective as of January 1, 2018. A married couple now has $22,400,000 in combined estate, gift and generation-skipping transfer tax exemptions. The estate, gift and generation-skipping transfer tax rate on transfers in excess of the exemption remain at the current 40% rate.
The TCJA also left intact the portability of the estate tax exemption, i.e., the ability of a surviving spouse to use any unused exemption of the first spouse to die, as well as the basis step-up for assets owned at the time of death. Lastly, for 2018, the annual gift tax exclusion (the amount you can gift each year to any number of individuals without any gift tax consequence) is increased to $15,000 in 2018.
All in all, the TCJA’s transfer tax laws are great news for the taxpayer. The one caveat is that the TCJA’s estate, gift and generation-skipping transfer tax changes sunset at the end of 2025. In other words, as passed, the increased exemptions are temporary. It is anyone’s guess what may happen between now and the end of 2025.
What does this all mean for you? It would be a good idea to review your estate plan in light of these significant changes. If you have a taxable estate (above $11,200,000 for an individual or $22,400,000 for a couple) you now have more exemption that can be used for lifetime gifting. For those with non-taxable estates, your estate plans may be more complex than needed and may not achieve optimal income tax results after death.
Please contact us at 303.320.1053 if you would like to schedule a review of your estate plan to discuss how these changes impact you.