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2018 Estate and Gift Tax Law Changes

January 8, 2018 by Pete Finch
Copeland Buhl

FEDERAL:

Under the Tax Cuts and Jobs Act of 2017 that was signed into law by President Donald Trump on 12/22/2017, the basic exclusion amount for gifts made and estates of decedents passing away after December 31, 2017 and before January 1, 2026 has doubled from an inflation-adjusted $5 million to an inflation-adjusted $10 million per person ($10 million and $20 million for married couples).

After accounting for inflation, the 2018 Federal basic exclusion amount for Estate, Gift and Generation Skipping Tax is $11.2 million per person.  The tax rate for all three taxes remain unchanged at 40%.

THINGS TO CONSIDER

The Increase in the Basic Exclusion Amount is Temporary:

With the exclusion amount scheduled to return to $5 million per person (adjusted for inflation) in 2026 some individuals may want to utilize the higher exclusion amount to increase life time gifting to transfer additional wealth outside their taxable estate (including the appreciation on those assets) before the exclusion returns to the lower amount.

Taxpayers must keep in mind that the donee receives the donor’s cost basis in any property that is gifted during life (the basis is not stepped up to fair market value as is the case when assets are transferred at death).  So, the estate tax savings must be reviewed alongside any potential income tax costs from passing any unrealized gains to a donee.

Estate Planning Documents (including Wills, Trusts and Beneficiary Designations) Should be Reviewed:

Since many Estate Plans determine the value of assets passing to non-spousal beneficiaries with direct reference to an amount “creating the least amount of (Federal and/or State) Estate (and/or Generation Skipping) Tax” the increased exclusion amount may cause non-spousal beneficiaries to receive far more than was intended when the original document was drafted.

Taxpayers should review their current Estate Planning Documents along with their current Estate Value to determine how the new law may affect the distribution of their Estate.

MINNESOTA:

The Minnesota Estate Tax Exclusion has increased to $2,400,000 for decedents passing away in 2018 and is scheduled to increase $300,000 per year until it caps at $3,000,000 in 2020. A full summary of the Minnesota Estate Tax Exclusions for 2017-2020 is listed below:

  • $2,100,000 (for decedents passing away in 2017)
  • $2,400,000 (for decedents passing away in 2018)
  • $2,700,000 (for decedents passing away in 2019)
  • $3,000,000 (for decedents passing away in 2020)

If you have any questions about the updated Minnesota tax law or any other tax questions, please contact our office at (952)476-7100.

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