New tax legislation, known as the Tax Cuts and Jobs Act (the “Act”), doubles the gift and estate tax exemption (the “exemption”), which is the amount that an individual may transfer free of tax either by gift during lifetime or at death.
In 2017 the exemption was $5,490,000. The Act temporarily doubles the exemption to approximately $11,180,000* per individual (or $22,360,000 for married couples). This temporary increase expires on December 31, 2025, and then the exemption reverts to its current level ($5,000,000 per person, adjusted for inflation).
Of course, future legislation could reduce the exemption prior to 2026, or extend the higher exemption beyond 2026.
The Act directs that Treasury issue regulations to address the treatment of gifts made when the exemption is at a high level (during 2018 to 2025, for example) if the donor dies when the exemption is dropped to a lower amount (for example, if the donor dies in 2026 or later years). We will be reviewing these Treasury regulations when issued; however, many commentators believe that these regulations will provide that tax savings associated with prior gifts will not be reduced if the exemption is decreased in the future.
The increased exemption available between 2018 and 2025 presents significant opportunities for some clients to make additional tax free gifts.
In addition, adjustments to existing estate plans may also be necessary given the higher exemption. For many clients, estate taxes may not be a concern, and estate plans should be reviewed to take advantage of a step up in income tax basis of assets on death.
Please contact Kent Silvester, Stuart List or Stacey Brennan if you have any questions regarding this article, or if you would like to discuss the impact the Act may have on your estate plan and the opportunities it may present to you.
*Approximate because the IRS needs to compute and announce the actual inflation adjusted exemption amount.
Legal disclaimer: The information in this article (i) is provided for general informational purposes only, (ii) is not provided in the course of and does not create or constitute an attorney-client relationship, (iii) is not intended as a solicitation, (iv) is not intended to convey or constitute legal advice, and (v) is not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any of the information in this article without first seeking qualified professional counsel on your specific matter.