Batson Nolan explains changes in the new tax laws that may affect your family.
On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act of 2017. This new law has sweeping changes that affect taxation of estates and gifts through 2026, the date of their expiration.
Currently, in 2017, the law is:
- An individual has a lifetime tax exemption of $5.49 million.
- Couples have a combined exemption of $10.98 million.
- What this exemption means is that you have up to $5.49 million that you may gift during your lifetime or give away at your death free of any tax from the federal government.
- Married couples have up to $10.98 million with which they may do likewise.
Under the new tax law, beginning in 2018,
- Individuals may gift or give away at their deaths up to $11.2 million.
- Couples are exempted up to $22.4 million.
This exemption is tied into the inflation index so it will increase yearly until 2026 at which time it will revert to roughly $6 million per individuals and $12 million for couples, depending on inflation.
As for the yearly gift tax exemption, an individual can give up to $14,000.00 tax free for 2017, but this is raised to $15,000.00 for 2018. What this means is that an individual can give up to $15,000.00 tax free to individuals without using their lifetime exemption on a yearly basis. Any gift amount over $15,000.00 would require you to file a gift tax return letting the IRS know you are using some of your lifetime exemption to cover the excess.
So how do these laws affect you?
For almost all you who are reading this blog, this new tax law will exempt your families from any federal estate or gift taxation. Accordingly, you may want to revisit your estate plan and update or revise your will to better conform with this new law. This is especially true for wills and revocable trusts drafted prior to 2013.
For those with high net wealth, 2018 is a great year in which to make significant gifts and establish irrevocable dynasty trusts in which you place significant assets to protect against future taxation. The bottom line recommendation for very high net worth individuals is to use these high exemptions now while we have them.
As Batson Nolan mentions in a previous blog, the only thing we can predict with certainty is that there will be uncertainty in regard to the tax law at the time of its expiration in 2026. Depending on the makeup of Congress and the presidency, these laws may stay similar, be modified, or be repealed in their entirety.
Remember, not that long ago in 2000, the total estate and lifetime tax exemption was $675,000 for an individual. While no one is predicting a return to that exemption, a significant reduction in the tax exemption to is very possible in 2026.
If you have further questions, the attorneys of Batson Nolan are available to provide the help you need. We can help clarify the gift taxation, and also help with any estate planning needs. Call our office to set up an initial consultation.