As you have likely read, the new year brought significant changes to U.S. tax laws. But did you know that the changes to the federal estate tax may impact your estate planning? We’ve highlighted some potential planning opportunities that have been created under the new legislation below.
The Tax Cuts and Jobs Act (TCJA) became effective January 1. From an estate planning perspective, there are only a few — albeit significant — changes.
- The TCJ Act increases the per person estate and gift tax exclusion amount to $11.18 million per person (adjusted annually for inflation).
- The generation-skipping transfer (GST) tax exemption amount is also increased to $11.18 million per person for lifetime or testamentary GST transfers.
- The increased gift and estate tax exemption amount and GST tax exemption will apply to gifts made and decedents dying from January 1, 2018 through December 31, 2025.
- Absent further Congressional action, the exemption amounts will revert to $5 million per person, indexed for inflation, in 2026.
- The new $11.18 million per person exemption amounts will be reduced by the amount of exemption already used for lifetime gifts.
- TCJA retains portability. Portability allows unused federal estate tax exemption to be used by a surviving spouse if proper elections are made, which effectively allows the surviving spouse to apply both the survivor’s and the decedent’s unused federal gift and estate tax exemptions. Portability does not apply to Oregon or Washington state estate taxes.
- Oregon and Washington estate tax laws remain unchanged and in effect. Neither state has a gift tax at this time. For 2018, the Oregon estate tax exemption amount is $1,000,000 (with a top rate of 16 percent) and the Washington estate tax exclusion amount is $2,193,000 (with a top rate of 20 percent).
- The annual tax-free gift amount is increased to $15,000 per recipient.
Given that an individual may now transfer $11.18 million tax free during his or her lifetime ($22.36 million for a married couple) and that neither Washington nor Oregon has a gift tax, this new legislation provides a significant planning opportunity for Washington and Oregon residents to transfer assets during life.