[After this post was published, Congress passed the Tax Cuts and Jobs Act, which changed estate tax exemptions starting in 2018. Read this article for more information.]
The IRS recently (officially) announced increases in the estate and gift tax exemption for 2018. The combined exemption will be $5.6 million per individual, up from $5.49 million in 2017. In other words, if you die in 2018, you can leave $5.6 million (or $11.2 million for married couples*) to heirs without paying a federal estate or gift tax.**
The annual gift exclusion amount also has increased to $15,000 in 2018—up from $14,000 in 2017. This means you can now give away $15,000 (and a husband and wife can each gift $15,000) to as many individuals as you want each year without paying any gift tax. For example, starting in 2018, a couple could make $15,000 gifts to each of their four grandchildren, for a total of $120,000. Gifts beyond the annual exclusion amount count towards (i.e., reduce) the $5.6 million combined estate/gift tax exemption.
Of course, tax reform being discussed at the Capitol could change all of this. President Trump’s tax reform framework, announced last month, calls for the elimination of the federal estate tax. However, the estate tax repeal may end up being sacrificed as the Republican-controlled Congress focuses on lowering corporate and individual income taxes.
To learn how to minimize or avoid estate taxes or to take other actions to protect your hard-earned assets, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates today for a free, no-obligation consultation.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]
*The $11.2 million exemption per couple is not automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse without paying federal estate tax. However, to use your spouse’s unused exemption — a.k.a. "portability" — you have to elect to do so on the estate tax return of the first spouse to die, even when no tax is due. Otherwise, you could be hit with a surprise federal estate tax bill.
**Although Oklahoma has eliminated its separate estate tax, 18 states and the District of Columbia still have a separate inheritance tax or inheritance tax. This number will drop to 17 in 2018, as Delaware and New Jersey each repealed their estate taxes effective January 1, 2018 (though New Jersey still has an inheritance tax).