New (Good) Estate and Gift Tax News - Just Not the News You Were Expecting

The IRS announced last week, in a visually stunning and well written Revenue Procedure (that is sarcasm) some good news for estate and gift taxes. They announced the 2018 inflation adjusted amounts for the annual exclusion gift, the estate and gift tax exemption, and the exclusion for gifts to non-U.S. citizen spouses. The new numbers are a long awaited increase in the annual exclusion from $14,000 to $15,000, as well as a higher than expected raise in the estate tax exemption from $5,490,000 to $5,600,000. The non-U.S. citizen spouse annual gift exclusion went from $149,000 to $152,000.

While these amounts are subject to change every year, the annual exclusion amount has been “stuck” at $14,000 since 2013. With the annual exclusion, you can now (in 2018) give up to $15,000 (cumulative) every year to any one, usually without having to report it to IRS on a Form 709 (Gift Tax Return) and reducing your $5.6 million exemption from estate taxes at death. For a couple, that effectively raises the amount you can give to each child from $28,000 per year to $30,000, and allows you to “overfund” your 529 by an additional $5,000.

The rise in the federal estate and generation skipping exemptions, from $5.49M to $5.6M means an individual, in addition to annual exclusion transfers, can pass $5.6M million to their beneficiaries free of federal estate tax and that a couple, with appropriate planning and filing, can pass $11.2M.

For the large population, in this area, of individuals not married to a U.S. citizen, the annual exclusion for gifts to those spouses increased to $152,000 from $149,000. Annual gifts above that limit use your lifetime ($5.6M) gift and estate tax exemption.

If you are wondering how likely this is to affect you one way or the other, The Washington Post published an interesting analysis and visual representation. The article quoted The Tax Policy Center, estimating that in 2017 5,200 people will end up paying any estate tax, meaning that less than .25{93997c19cca2413204031df21c26e128a46aabe0f65d6d1b886d87d0d40a7681} of 1{93997c19cca2413204031df21c26e128a46aabe0f65d6d1b886d87d0d40a7681} of decedents in the U.S. will pay any federal estate tax. They also have a visual representation that is, at least, interesting. Let me know how many people you ended up killing before moving on to another article.

If you have questions about how these changes, and other changes to the estate and gift tax, may affect you, please contact us to discuss your estate planning issues.