The Federal estate, gift and generation-skipping transfer (GST) tax exemption amounts have increased in 2020, to $11.58 million per individual.
A married couple may now transfer a total of $23.16 million free of Federal estate, gift and GST taxes, either during life or at death. Even a married couple who utilized full Federal exemptions in prior years will have additional exemption available for lifetime planning in 2020. For example, a married couple who used $10.24 million of Federal exemption in 2012 (the maximum in that year) would now have an additional $12.92 million of Federal exemption.
Absent intervening legislation, the Federal exemption amount will be increased for inflation each year until January 1, 2026, when it will return to $5 million, adjusted for inflation. IRS regulations now provide that individuals who use the increased Federal exemption amount for lifetime gifts will not be adversely affected by a decreased Federal estate tax exemption after 2025 (i.e., no “clawback” if the exemption amount in the year of death is lower than the amount of exemption used during life).
Annual gift tax exclusions are available in addition to the Federal gift tax exemption. Each year an individual may make gifts of $15,000 (or $30,000 for married couples) to an unlimited number of recipients without using up any part of such individual’s Federal gift tax exemption.
When evaluating your estate plan, it is also important to consider recent developments in state laws:
The New York estate tax exclusion in 2020 is $5.85 million, scheduled to increase annually for inflation. The benefit of the exclusion is “phased out” for taxable estates between 100% and 105% of the exclusion amount, and eliminated entirely for taxable estates that exceed 105% of the exclusion amount. As a result of this “cliff,” if a taxable estate exceeds 105% of the exclusion amount, the entire taxable estate will be subject to the New York estate tax (applied at graduated rates).
There is no separate gift or GST tax in New York. However, taxable gifts made by a New York resident prior to December 31, 2025 and within three years of death are added back to and taxed in the resident’s estate.
The Connecticut estate and gift tax exemption in 2020 is $5.1 million, and will increase to $7.1 million in 2021, and $9.1 million in 2022. Beginning in 2023, the Connecticut exemption will equal the Federal exemption (as adjusted for inflation). There is no separate GST tax in Connecticut.
New Jersey repealed its estate tax entirely, effective January 1, 2018. However, New Jersey has retained its separate inheritance tax, which is based on the relationship between the decedent and the beneficiary. Transfers to a spouse, child, stepchild or grandchild of the decedent are exempt from inheritance tax. There is no separate gift or GST tax in New Jersey.
The 2020 estate tax exemption amounts: