Changes to federal estate, gift, and generation-skipping transfer tax laws

President Trump signed the Tax Cuts and Jobs Act on December 22, 2017. This tax bill included some changes made to the federal estate, gift, and generation-skipping transfer tax laws.

  • The Act doubled the federal estate, gift, and generation-skipping transfer tax exemptions through the end of 2025. Effective January 1, 2018, each individual has a federal exemption of approximately $11.2 million (includes inflation adjustment – exact indexed amount yet to be determined using the new “chained CPI” approach). Married couples will have a federal combined exemption of approximately $22.4 million. These amounts are to be adjusted annually for inflation.  As of January 1, 2026, the estate tax laws are scheduled to revert to the pre-Act amount which will be approximately half of what the exemption was in 2025.
  • The annual amount that can be given tax-free to an unlimited number of persons has increased from $14,000 to $15,000 per year.
  • A decedent’s assets will continue to receive a step-up in basis for federal income tax purposes upon a decedent’s death.

This doubling of the federal estate, gift, and generation-skipping transfer tax exemptions may create an additional planning opportunity for taxpayers. *Taxpayers who already used all of their federal gift tax exemption under prior year limits may want to consider making additional taxable gifts to take advantage of the current higher exemptions that are now in place.

Taxpayers should review their current estate plans to ensure the provisions in their documents are still applicable. Wills and revocable trusts often use formulas to calculate the amount to fund certain trusts upon a decedent’s death. If these formulas are tied to the federal estate tax exemption, you will want to address this with your estate planning attorney. For those taxpayers who are residents of MN, it is important to note that while the federal estate tax exemption has increased, the current 2018 MN exemption is $2.4 million per person.

*Regulations will address potential “clawback” – i.e., a prior gift that was covered by the gift tax exclusion amount at the time of the gift might result in estate tax if the estate tax basic exclusion amount has decreased by the time of donor’s death, thus resulting in a “clawback” of the gift for estate tax purposes. This is the same issue that was a concern in 2012 when the possibility existed of the gift tax exclusion amount being reduced from $5 million (indexed) to $1 million. Even in a worst-case scenario where there is a “clawback”, all the post-gift appreciation attributable to the excess gift amount would still be removed from the decedent’s estate.

If you have any questions or would like more information on this topic, look to Lurie and contact one of our trusted advisors.

Heather Wright, CPA, CSEP
Manager, Tax Services












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