You may have heard that some of the tax laws changed starting in January 2018, but you may not know how the changes will affect your estate plan. The Tax Cuts and Jobs Act made several key adjustments to the estate and gift tax exemption and the annual gift tax exclusion. Depending on your annual giving and the size of your estate, you may need to review your estate plan.
- Estate and Gift Tax Exemption
The new tax laws more than doubled the estate and gift tax exemptions from $5,490,000 to $11.18 million per person in 2018, and $11.4 million in 2019. The estate and gift tax exemptions are “unified”, meaning that the IRS assesses tax based on the total value of gifts that you make during your lifetime plus the value of the assets remaining in your estate when you pass away. Previously, tax would be assessed if this total exceeded $5.49 million.
Now, you can have a combination of $11.4 million in lifetime gifts and total value of assets before your estate owes tax. Since the estate tax is assessed at a 40% rate, not having to pay it can save your estate a lot of money.
There is a catch, however – the higher exemption amount expires after the year 2025. Since you may not be able to take advantage of it after then, you may want to keep your existing estate plan in place. For many people with smaller estates, the new laws will have little impact If, however, the previously lower exemption amount substantially impacted the type of planning you have done, you may want to make changes. For example, you may not need some complex trusts or certain types of language in your estate planning documents.
- Annual Gift Tax Exclusion
Further, the new tax laws also increased the annual gift tax exclusion from $14,000 in 2017 to $15,000 in 2018 and 2019. The annual gift tax exclusion allows you to give up to the exclusion amount in a given year to a single person without owing gift taxes on the amount.
For example, you could give $15,000 or less to your child and $15,000 or less to your niece in 2018, and you would not owe gift taxes. The IRS does not tax recipients on gifts, so your child and niece would not owe taxes for these gifts either.
While the increase in the annual exclusion may seem minimal, it takes into account inflation and allows people to do more lifetime giving. Lifetime giving reduces the overall value of your estate for tax purposes and for probate.
Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.