The Senate and House of Representatives have both passed the Tax Cuts and Jobs Act of 2017 (“TCJA”), and President Trump signed the Act on December 22, 2017.
The TCJA makes numerous changes to many aspects of the Internal Revenue Code, most of which will be effective January 1, 2018. Although the changes Code cover a broad range of estate, income, corporate and other taxes, this post focuses on estate and gift tax.
There was much debate about elimination of the death taxes. However, the TCJA does not eliminate federal estate, gift, and generation-skipping transfer taxes. Instead, the TCJA doubles the exemptions to approximately $11,210,000 as of January 1, 2018. (The exact amount is a function of an inflation adjustment and so may vary slightly). The tax rate on transfers in excess of the exemption will remain 40%.
Under the TCJA, a married couple in 2018 has roughly $22,420,000 in combined estate and gift tax exemption. As has been true for a number of years, the unused exemption of the first spouse to die still can be “ported” to the surviving spouse.
The annual gift tax exclusion remains, and will increase to $15,000 per recipient per year in 2018. “Basis step-up” remains in place – the adjustment to federal income tax basis of most assets owned at death.
Most importantly, the TCJA’s estate, gift, and generation-skipping transfer tax changes sunset at the end of 2025. This means the increased exemptions are temporary. What might happen between now and 2025 is anyone’s guess.
You may wonder what steps you should consider taking now. Unlike 2012, the TCJA presents no year-end gift tax deadlines. You may wish to review your estate plan in light of the very significant increase in the estate, gift and generation-skipping tax exemptions. This is especially true if your plan keys gifts to certain individuals based on the size of your estate or generation-skipping tax exemption.