Oct 31

Federal Estate Tax Inflation-Adjustments for 2018

Throughout the federal tax code there are figures which are inflation-adjusted – meaning they go up when there is inflation and they go up more when there is more inflation.  The adjusted figures for the coming year are generally announced in October of the current year and on October 19, 2017 the IRS announced the adjustments for 2018.  There are a number of such figures that relate to estate planning but the primary three are: (i) the federal gift tax annual exclusion, (ii) the estate and gift tax exemption and (iii) the amount which a U.S. donor can transfer outright by gift to a non-U.S. citizen spouse.

The gift tax annual exclusion is that amount which one individual can give to another individual, or to a qualifying trust for another individual, without using up any of the estate and gift tax exemption and without paying any gift tax.  If the donor is married and the other spouse consents to split the gift on a gift tax return, the amount of the annual exclusion for each recipient of the gift (the donee) doubles.

In 2017 the federal gift tax annual exclusion is $14,000.  The exclusion has been $14,000 since 2013.  Individuals who may be subject to federal estate tax or state estate or inheritance tax should consider making such gifts to family members and others before December 31, 2017 (a gift by check must clear before the end of the year).

For 2018 the federal gift tax annual exclusion is increased to $15,000.

The estate and gift tax exemption is that amount which a donor can give to individuals or trusts during life (in addition to annual exclusion gifts and gifts of any amount which qualify for the education or healthcare exclusion) or at death, without having to pay federal gift or estate tax.  The exemption is cumulative which means to the extent a donor consumes the exemption during his/her lifetime it is unavailable to minimize federal estate tax at death.

For gifts made in 2017 and individuals who die in 2017, the gift and estate tax exemption is $5,490,000.  For 2018, the inflation-adjustment increases the exemption to $5,600,000.

Because of portability, the combined exemption for a married couple will be $11,200,000 for 2018.

That amount which a U.S. spouse can give outright to a non-U.S. citizen spouse which will qualify for the annual exclusion is also inflation-adjusted.  That amount is $149,000 in 2017 and will be $152,000 in 2018.

So sometimes inflation is not a bad thing.

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