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Estate & Gift Tax Rules Have Changed!

by Mario Di Luigi   |  Partner, Tax and Business Services

The Tax Cuts and Jobs Act, signed into law on December 22, marks the largest overhaul of U.S. tax policy in decades.  The majority of the changes began taking effect in 2018, including the estate and gift tax law. The amount of assets any person can pass to their heirs through gifts during their lifetime, or via their estate at death, more than doubles. The estate and gift tax lifetime “exemption” changed from $5.49 million in 2017 to approximately $11.18 million per person in 2018. That said, the change is only temporarily through 2025, meaning the next eight years are most beneficial for taxpayers to plan before the exemption sunsets on January 1, 2026.

Married couples can pass $22.36 million on a combined basis. The increased exemption sunsets, and the former $5.49 million exemption comes back into play in 2026. If your estate assets fall in between the old exemption and the new one, you will need to plan around the 2026 sunset.

Residents don’t need to file anything at the state level, unless they own real estate or personal property in a state that still levies a tax. A number of states still maintain estate or inheritance taxes, and they will tax any property located in their state. This is something to consider in your estate planning.

Gift tax “annual exclusion” increases from $14,000 in 2017 to $15,000 in 2018.

 While not affected by the new tax bill, this change increases the amount that any person can gift to another person without the requirement of filing a gift tax return. As such, married couples can now gift $30,000 to any other person.

More options for Section 529 annual gifts.

If you make annual gifts to 529 plans for your children or grandchildren, the new tax law allows for tax-free distributions for private elementary and secondary school education, making them a more flexible tool.

Time to maximize the step-up in basis of your assets.

The tax law permits your heirs to increase the cost basis of any assets they inherit to the fair market value at your death.  It is important to focus on maximizing this “step-up in basis.”  This is straight forward if you are single, but if you are married, the key is to try to obtain a second step-up in basis on any assets that transfer at the death of the first spouse.

For those of you with standard revocable living trusts drafted in the last few decades, it’s time to dust off those documents and discuss them with an expert. In many cases, those trusts will be drafted to pass 100% of the trust assets to a “family trust” under this new tax regime. 20 years ago the estate exemption was $625,000, but under the new law the exempted assets will lose the step-up at the surviving spouse’s death, and likely won’t save you any estate taxes.

Do you have questions about estate planning or other tax issues? Please contact us today!

About Mario Di Luigi: Mario is a Partner in the Tax and Business Services department and has been with the firm for over 25 years.  His clients include high net-worth individuals, estate and trust administration, home builders, medical and professional services, and real estate management.  Mario has extensive experience in numerous industries including residential construction, professional services, real estate management and closely-held businesses.

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