The 2018 Estate, Gift and GST tax lifetime exclusion is $11,180,000 per taxpayer

The 2018 Estate, Gift and GST tax lifetime exclusion is $11,180,000 per taxpayer

Group News posted in on 23 March 2018| comments
audience: The Boston Foundation | last updated: 23 March 2018
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The Tax Cut and Jobs Act of December 2017 increased the amount that a U.S. citizen or resident can transfer to another individual free of estate, gift or Generation-Skipping Transfer taxes (collectively, the “transfer taxes”).

What is the transfer tax exemption for 2018?

The lifetime exemption amount for all three transfer taxes is computed with reference to a base amount of $10,000,000 per taxpayer plus an annual inflation adjustment. The inflation adjustment is determined yearly by the Internal R_evenue Service. On March 2, 2018, the IRS announced that the 2018 transfer tax exemption amount is $11,180,000.

The tax rate applicable to transfers above the exemption is currently 40%.

What does the sunset provision of the Act mean?

The Tax Cuts and Jobs Act provided that the higher exemption levels are effective through 2025, and revert to prior law (with the exception of retaining the formula for computing the inflation adjustment) on January 1, 2026.
Unless the tax law changes between now and then, the exemption amount per taxpayer will be back to $5,000,000, plus the inflation adjustment, on January 1, 2026.

How has the federal transfer tax exemption amount changed over the years?

The transfer tax exemptions (and the highest marginal transfer tax rates) have undergone several sweeping changes in the last two decades. The exemption amounts have been fully unified only since 2011.

Since 1997, the estate, gift tax and Generation-Skipping Transfer tax lifetime exemption amounts have changed as follows:

 
Estate & Gift* lifetime exemption:
GST lifetime exemption:
1997
$600,000
$1,000,000
1998
$625,000
$1,000,000
1999
$650,000
$1,010,000
2000
$675,000
$1,030,000
2001
$675,000
$1,060,000
2002
$1,000,000
$1,100,000
2003
$1,000,000
$1,120,000
2004–2005*
$1,500,000
$1,500,000
2006–2008*
$2,000,000
$2,000,000
2009*
$3,500,000
$3,500,000
2010*
$5,000,000**
***
2011
$5,000,000
$5,000,000
2012
$5,120,000
$5,120,000
2013
$5,250,000
$5,250,000
2014
$5,340,000
$5,340,000
2015
$5,430,000
$5,430,000
2016
$5,450,000
$5,450,000
2017
$5,490,000
$5,490,000
2018
$11,180,000
$11,180,000
 

Notes:

* Between 2002 and 2010, the lifetime exclusion for gifts was capped at $1,000,000

**In 2010, estates had the option to choose between a “no estate tax” system that afforded limited step-up in tax cost for the decedent’s assets, or a $5,000,000 federal estate tax exemption with full step-up in tax cost.

***In 2010, the GST tax exemption was $5,000,000, but the GST tax rate was 0.

 

How does the gift tax annual exclusion work with the lifetime exemption?

The gift tax annual exclusion, which is also adjusted for inflation and set by the IRS annually, allows taxpayers to make certain gifts without eroding the taxpayer’s lifetime exemption amount. For more on the gift tax annual exclusion, click here.

What does this mean for you?

The changing landscape of the federal transfer taxes has led to challenges and opportunities in estate planning. In view of the recent changes and the scheduled sunsetting of the estate, gift and Generation-Skipping Transfer tax exemption amounts, please consult with your Nixon Peabody LLP attorney about your estate plan.

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