By Myka Landry
Since we are in the midst of tax season, I thought it would be a good time to go over the tax changes that Congress passed and President Donald Trump signed into law in December 2017.
The most important provision involving estate planning is the increased exemption for estate taxes. With the new law, the federal exemption increases to $11.2 million per person in 2018 – or $22.4 million per couple. That is nearly double the $5.49 million per individual and $10.98 million per couple that was allowed in 2017.
Simply put, a person can have an estate worth $11.2 million at death before any federal estate tax would be due. The tax rate will remain the same – at 40 percent – for the few estates that would be subject to the tax.
Not included in the law, but equally worth noting, is the fact that the gift tax exclusion has increased in 2018 by $1,000. People can now give away a maximum of $15,000 each year to any individual without having to report the gift to the Internal Revenue Service (IRS).
Those who give away more than $15,000 are required to file a gift tax return, although they do not necessary have to pay a gift tax. The IRS allows individuals to gift $11.2 million during their lifetimes before a gift tax is owed.
The gift tax also applies to property other than money, such as stock. However, gifting property other than money can have income tax consequences, so make sure you consult with a qualified professional before making large gifts of property.
The current estate tax exemption will remain in place and annually indexed for inflation through 2025 if there are no other changes in the law.
The tax structure will revert to its current form in 2026 unless Congress acts between now and then. That means it will go back to the roughly $5.5 million per person estate tax exemption, indexed for inflation.
While a huge majority of citizens are exempt from paying estate tax, that does not mean people should not have an estate plan. Tax considerations are just one part of any plan. The other provisions, including distribution of your assets and assigning powers of attorney, are still vitally important.
Plus, politicians can – and will – make changes in the future. A regularly updated estate plan will make sure your needs are met under the most recent laws.