March 28, 2018

Estate and gift tax changes under the Tax Cuts and Jobs Act

On December 22, 2017 the Tax Cuts and Jobs Act (the “Act) was signed into law. The new tax bill has several significant impacts to the Estate and Gift Tax law. Some of those changes include the following items:

  •  Estate, Gift and GST (Generation Skipping Transfers) Tax exemptions were increased from the inflation adjusted amount of $5.6 million to $11.2 million per individual. A married couple would be able to transfer a total of $22.4 million to their heirs, estate and/or gift tax free.
  • The overall tax rate of 40% was left unchanged for that amount that is in excess of the exemption amount.
  • The annual gift exclusion for completed gifts in a calendar year was increased by $1,000 to a total of $15,000. These annual gifts do not reduce the lifetime exemption of $11.2 million.
  • The ability to elect to transfer to the surviving spouse the unused exemption from the deceased spouse is still available by the filing of a timely estate tax return including extensions.
  • The new law did not change the ability to step up the tax basis for most of the assets held by the decedent at the time of their death. Therefore, most of these assets will receive a new tax basis so that if the assets are sold post-death by the heirs, the heirs will have little to no capital gains that would create a taxable event on the heirs’ income tax returns.
  • For those estates that are above the exemption amount, discount planning techniques for lack of marketability or control factors are still viable as the proposed regulations that were issued by the IRS last year have been withdrawn and there is nothing in the new tax law that restricts this planning opportunity.
  • The standard historical planning for estates has involved the utilization of A/B trusts. With the increase in the exemption amount per person, this planning technique may not be appropriate for those combined estates that are less than $11.2 million as those assets that are required to be funded to the decedent’s trust will not be allowed a step up in basis when the surviving spouse passes, unless the executor utilities the Qualified Terminable Interest Property election (QTIP). Typically, second/third marriage families will still utilize the A/B trust structures to maintain beneficial interests of the first deceased spouse and the viability of creditor protection of the multiple trust structure. It may be appropriate to update your existing trust documents for this new law.

These increased exemptions are set to expire on December 31, 2025. These increased exemption amounts apply only to gifts made, individuals dying and GST transfers occurring from January 1, 2018 to December 31, 2025. Without further legislation, on January 1, 2026, the exemption amounts will revert back to the law in effect as of December 31, 2017. The exemption amount in 2026 would likely be somewhere around $6.5 million per person/ $13 million per couple.

There are many factors to consider, and maximizing any tax advantages does remain complicated. Therefore, contacting your tax professionals at Duffy Kruspodin, LLP, early in 2018, will be important to accurately understand and plan for your best possible outcome.


Duffy Kruspodin, LLP

The following contributed to this article: Thomas G. Duffy, Managing Partner; H. Cameron Williams, Partner