[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.
It is important to remember that the $11.2 million exemption per couple is not automatic. Rather, after one spouse dies, the surviving spouse must elect to use the deceased spouse’s unused estate tax exemption by filing a federal estate tax return for the deceased spouse.
This concept is commonly known as estate tax “portability”.
If the surviving spouse does not make a portability election, he or she will merely have the same estate tax exemption as any other individual and, as a result, could be hit with a surprise federal estate tax bill.
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.
Also keep in mind that the above information only applies to taxes at the federal level. Although Oklahoma has eliminated its own estate tax, 18 states and the District of Columbia still have a separate estate tax or inheritance tax in addition to the federal 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 This number will drop to 17 in 2018, as Delaware and New Jersey each repealed their estate taxes effective January 1, 2018 (though New Jersey still has an inheritance tax).
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.
David M. Postic is an attorney at Postic & Bates, P.C. His practice focuses on estate planning, probate, real estate, trust administration, business planning, and adoption.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our blog posts and other publications and resources, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]