As we previously reported, the American Taxpayer Relief Act of 2012 (the "Act") made the following permanent: (1) the reunification of the estate and gift tax regimes, (2) the $5 million estate, gift and generation-skipping transfer ("GST") tax exemptions, as increased for inflation (as discussed below), and (3) portability of the federal estate tax exemption between spouses at death.

Tax Exemption Inflation Increases for 2018

  • In 2018, there is a $5,600,000 federal estate tax exemption (increased from $5,490,000 in 2017) and a 40% top federal estate tax rate.

  • In 2018, there is a $5,600,000 GST tax exemption (increased from $5,490,000 in 2017) and a 40% top federal GST tax rate.

  • In 2018, the lifetime gift tax exemption is $5,600,000 (increased from $5,490,000 in 2017) and a 40% top federal gift tax rate.

  • In 2018, the annual gift tax exclusion is $15,000 (increased from $14,000 in 2017).

These increased exemptions create opportunities to make larger lifetime gifts, to leverage more assets through a variety of estate planning techniques (such as a sale to a grantor trust) and to shift income producing assets to individuals such as children or grandchildren who may be in lower income tax brackets and/or reside in states with a low income tax rate or no state income tax.

How do these changes affect your existing Proskauer estate planning documents?

Our estate planning documents are drafted to be flexible and, in general, their overall structure remains unaffected by the increased exemption amounts. Still, there may be instances where you will want to update your documents.

It should be noted that while the estate tax exemption is portable among spouses at death, the GST tax exemption is not portable. Also, most states that have separate state estate tax regimes (such as Connecticut and New York) do not permit portability. This creates an extra level of complication. Use of other estate planning options, such as bypass trusts at the first death of a married couple, may be most useful where these limits on portability are applicable.

Additionally, if you are a married couple and live in a state with a state estate tax, there may be provisions that should be added to your documents which could save state estate taxes at the death of the first spouse.