The new U.S. tax law (officially called the Tax Cut and Jobs Act, Pub. L. No. 115-97) ushered in several changes to the American wealth transfer tax system, which took effect on January 1. Under the new law, the federal estate, gift, and generation-skipping transfer (“GST”) tax exemption amounts will increase to $10,000,000 for individuals and $20,000,000 for married couples (before taking into account the necessary inflation adjustment; the 2018 amount that includes the inflation adjustment has not yet been released), from $5,490,000 and $10,980,000, respectively, in 2017. These exemption amounts are scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels, adjusted for inflation. The gift tax exemption has also increased; it is now $15,000 per person per year. The highest marginal federal estate and gift tax rates will remain at 40% and the GST tax rate will remain a flat 40%.
This significant and temporary increase in the exemption amounts presents a unique opportunity for estate planning. We recommend that clients consider taking advantage of the increased gift tax exemption amount and possibly the GST tax exemption amount by making gifts to children and/or grandchildren either outright or to new or existing trusts.
If you have questions about how the new tax law affects estate plans and estate taxes, give us a call at 253.858.5434 to set up an appointment today.