On Nov. 2, 2017, House Republicans released their long-awaited tax reform bill called “The Tax Cuts and Jobs Act.” The bill contains sweeping changes in a variety of areas and expands upon, and in some cases changes, what was included in the “Unified Framework for Fixing Our Broken Tax Code,” released in September 2017 (discussed here).
Unlike the framework, there is much more detail in the bill about the possible future of the estate tax, generation-skipping transfer (GST) tax, and gift tax. The following is a brief summary of the estate planning-related changes proposed in the bill.
The applicable exclusion amount will be doubled from $5 million (as of 2011) to $10 million, which, as before, is indexed for inflation. This means that in 2018, an individual would have the ability to transfer $11.2 million estate tax free instead of the $5.6 million that will be allowed under current law. The estate tax rate will continue with a highest marginal rate of 40 percent for estates in excess of the applicable exclusion amount. This will continue through 2023, and in 2024, the estate tax will be repealed in total.
As with the estate tax, the GST tax exemption amount will be doubled from $5 million (as of 2011) to $10 million, indexed for inflation. This means that in 2018, $11.2 million would be able to be transferred GST tax free instead of the $5.6 million that will be allowed under current law. This too will continue through 2023 with the GST tax at a flat rate of 40 percent. In 2024, the GST tax will be repealed.
The gift tax will continue with the annual exclusion amount being $14,000 (for 2017), and a lifetime exemption amount increased to $10 million, both indexed for inflation. Thus, under the bill, in 2018 the annual exclusion will continue at $15,000 per year, as under current law, but an individual would be able to transfer $11.2 million gift tax free as opposed to $5.6 million. The gift tax rate would continue with a highest marginal rate of 40 percent through 2023. However, the gift tax would not be repealed in 2024 like the estate tax and GST tax. The top gift tax rate will be lowered to 35 percent beginning in 2024, and the lifetime exemption amount will continue to be indexed for inflation.
As with the current law, assets included in the decedent’s estate will continue to receive an adjustment to basis at death, even after the estate tax is repealed.
The bill likely will see many changes as it continues through the legislative process. On Nov. 6, 2017, the House Ways and Means Committee will start a multi-day “mark-up” of the bill. The Senate will start a similar process in the next few weeks led by the Senate Finance Committee. Both chambers hope to pass a final bill by year end.