As I am sure everyone has heard by now, the tax reform bill known as “To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” went into effect on January 1, 2018. While there are a number of tax law changes in the bill, the focus of this article are the changes to the estate, gift, and generation-skipping transfer taxes, and how it could change the direction of your current estate planning.
- In 2018, there is an $11,180,000 federal estate tax exemption for individuals (increased from $5,490,000 in 2017), a $22,360,000 federal estate tax exemption for married couples (increased from $10,980,000 in 2017), and a 40% top federal estate tax rate.
- In 2018, there is an $11,180,000 generation-skipping transfer tax exemption for individuals (increased from $5,490,000 in 2017), a $22,360,000 generation-skipping transfer tax exemption for married couples (increased from $10,980,000 in 2017), and a 40% federal generation-skipping transfer tax rate.
- In 2018, the lifetime gift tax exemption is $11,180,000 for individuals (increased from $5,490,000 in 2017), a $22,360,000 lifetime gift tax exemption for married couples (increased from $10,980,000 in 2017), and a 40% top federal gift tax rate. Please note, the federal estate tax and lifetime gift tax exemptions are a unified exemption.
- In 2018, the annual gift tax exclusion is $15,000 per person for individuals (increased from $14,000 per person in 2017), and $30,000 per person for married couples (increased from $28,000 per person 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.On the state side, on June 30, 2011, Ohio Governor John Kasich signed the 2012-2013 budget into law, which eliminated the Ohio estate tax effective for deaths occurring on or after January 1, 2013. As a result, there continues to be no Ohio estate tax effective in 2018.
While these credit amounts have been higher for years, 2018 presents a significant, but also temporary, increase in the federal estate, gift, and generation-skipping transfer tax exemptions. As a result, we recommend looking at your current estate planning to determine whether you should take advantage of the increased lifetime gift tax exemption amount and possibly the generation-skipping transfer tax exemption amount by making gifts to children and/or grandchildren either outright or to new or existing trusts. For example, the increased lifetime gift tax exemption would allow an individual who previously used his or her full lifetime gift tax exemption amount to transfer an additional $5,690,000 (or $11,380,000 for a married couple) in 2018 without any federal gift tax consequences.
Additionally, now is the time to review your current estate planning documents to ensure they remain in accordance with your intent. For example, many estate plans create trusts that will be funded according to formula clauses tied to the federal estate exemption amount in effect on your date of death. Therefore, with the increased federal estate tax exemption amount, these trusts may be funded with significantly larger amounts than you anticipated when the documents were signed. Additionally, many clients set up irrevocable trust agreements to offset potential federal and state estate taxes when the federal estate tax exemption amount was much lower and Ohio still had a state estate tax. Now would be a good time to review those irrevocable trust agreements to assess their utility in light of the changes to the law, understanding that these tax laws can always change.
Whether you are interested in making lifetime gifts to friends or family, leveraging your assets, shifting income producing assets to individuals who may be in a lower income tax bracket, such as children or grandchildren, or want to review whether your estate planning documents still reflect your intent for the transfer of your assets after you pass away, your estate planning attorneys at Stark & Knoll will advise you on how to take full advantage of the current federal and state estate, gift, and generation-skipping transfer tax laws and will assist you with achieving your estate planning goals.