2018 Year End Estate and Gift Tax Planning Update

In the beginning of the year we alerted our clients to changes in the federal and state estate and gift tax laws.  As we approach the end of the year we want to remind you of year-end gifting opportunities as well as some state estate tax revisions enacted during the year.

We recommend that clients review their estate plan at least every five years, or sooner if there are changes in your financial or personal life, changes in your relationship with your fiduciaries or beneficiaries, or changes in the state or federal estate tax law.

Federal Estate and Gift Taxes.  On January 1, 2018, the federal estate tax exemption doubled to $11.2M per person ($22.4M for married couples).  The exemptions are set to expire and revert back to $5M per person, adjusted for inflation, after 2025.  Your beneficiaries will continue to receive the benefit of a “step up in basis” to the date of death value on assets included in your estate.  If a new administration is elected after the 2020 federal elections it is possible the exemptions may be reduced back to current levels.  Thus, consideration should be given to utilizing the large estate and gift tax exemptions while they are available.  However, clients must also weigh the potential estate tax savings against the loss of a “step up in basis” at death.  The Act provides for regulations to be implemented to prevent the gifts which utilized the additional exemptions from being “clawed back” at death in the event the exemption sunsets (as it is scheduled to do in 2025).

Federal Gift Tax Annual Exclusion.  The federal gift tax annual exclusion is $15,000 per recipient for 2018 (increased from $14,000 due to an adjustment for inflation).  There is an unlimited gift tax marital deduction for U.S. citizen spouses.  The annual exclusion for gifts to non-citizen spouses is $152,000 for 2018.

State Estate and Gift Taxes.  States that impose their own estate tax will not be affected by the Act.  Clients in Connecticut must consider the impact of the state gift tax (the only state with a gift tax).

  • Connecticut Estate and Gift Tax: The Connecticut estate and gift tax exemption rose to $2.6M in 2018.  The exemption is scheduled to rise to $3.6M in 2019, $5.1M in 2020, $7.1M in 2021, $9.1M in 2022 and match the federal exemption in 2023 (currently $11.8M but indexed for inflation).  The federal exemption will revert back to $5.1M in 2026. In addition, beginning January 1, 2019, the cap on the maximum estate tax imposed on the estates of decedents dying on or after January 1, 2019, and the maximum gift tax imposed on taxable gifts made on or after January 1, 2019, will lower from $20M to $15M.
  • Massachusetts Estate Tax: The Massachusetts estate tax exemption remains at $1M per person.
  • New Jersey Estate and Inheritance Tax: Effective January 1, 2018, New Jersey eliminated its estate tax, but the inheritance tax remains in effect.  Transfers to spouses, children and grandchildren will remain inheritance tax-free, however, any transfers to a sibling, aunt/uncle, niece/nephew, friend, etc., would be subject to the inheritance tax.  Many professionals believe the estate tax may be re-introduced by a new legislature.
  • New York Estate Tax: The New York Estate Tax exemption is S5.25M for 2018.  In 2019 the New York estate tax exemption will be about $5.5M adjusted for inflation.  If your estate exceeds the exemption, then the entire estate is subject to the estate tax.

Update Your Estate Planning Documents:  Many estate plans provide for the creation of a Family Trust (or Credit Shelter Trust) upon the first spouse to die.  In older estate plans, the formula for funding that trust may continue to reference funding it with the maximum amount that can pass free of federal estate tax.  The doubling of the federal estate tax exemption could result in significant state estate tax.  In newer plans, the funding formula may have been based upon the maximum state estate tax exemption.  With the larger state estate tax exemptions this may no longer be necessary or a desired result.  Estates below the state and federal exemption may be suitable for a simplified estate plan.  Clients should contact the Firm to review and update their estate plans.

The Tax Cuts and Jobs Act is a Major Change to Estate Planning

The Tax Cuts and Jobs Act is a major change to estate planning.  We encourage you to contact the Firm to review and update your estate plan.  We recommend that clients review their estate plan at least every five years, or sooner if there are changes in your financial or personal life, changes in your relationship with your fiduciaries or beneficiaries, or changes in the state or federal estate tax law.

Federal Estate and Gift Taxes.  On January 1, 2018, the federal estate tax exemption doubled to $11.2M per person ($22.4M for married couples).  The exemptions are set to expire and revert back to $5M per person, adjusted for inflation, after 2025.  Your beneficiaries will continue to receive the benefit of a “step up in basis” to the date of death value on assets included in your estate.  If a new administration is elected after the 2020 federal elections it is possible the exemptions may be reduced back to current levels.  Thus, consideration should be given to utilizing the large estate and gift tax exemptions while they are available.  However, clients must also weigh the potential estate tax savings against the loss of a “step up in basis” at death.  The Act provides for regulations to be implemented to prevent the gifts which utilized the additional exemptions from being “clawed back” at death in the event the exemption sunsets (as it is scheduled to do in 2025).

Federal Gift Tax Annual Exclusion.  The federal gift tax annual exclusion is $15,000 per recipient for 2018 (increased from $14,000 due to an adjustment for inflation).  There is an unlimited gift tax marital deduction for U.S. citizen spouses.  The annual exclusion for gifts to non-citizen spouses is $152,000 for 2018.

State Estate and Gift Taxes.  States that impose their own estate tax will not be affected by the Act.  Clients in Connecticut must consider the impact of the state gift tax (the only state with a gift tax).

  • Connecticut Estate and Gift Tax: The Connecticut estate and gift tax exemption rose to $2.6M in 2018.  The exemption is scheduled to rise to $3.6M in 2019 and then match the federal exemption in 2020.   In addition, beginning January 1, 2019, the cap on the maximum estate tax imposed on the estates of decedents dying on or after January 1, 2019, and the maximum gift tax imposed on taxable gifts made on or after January 1, 2019, will lower from $20M to $15M.
  • Massachusetts Estate Tax: The Massachusetts estate tax exemption remains at $1M per person.
  • New Jersey Estate and Inheritance Tax: Effective January 1, 2018, New Jersey eliminated its estate tax, but the inheritance tax remains in effect.  Transfers to spouses, children and grandchildren will remain inheritance tax-free, however, any transfers to a sibling, aunt/uncle, niece/nephew, friend, etc., would be subject to the inheritance tax.
  • New York Estate Tax: The New York Estate Tax exemption is $5.25M for 2018 and it is scheduled to match the federal exemption starting January 1, 2019.

Update Your Estate Planning Documents:  Many estate plans provide for the creation of a Family Trust (or Credit Shelter Trust) upon the first spouse to die.  In older estate plans, the formula for funding that trust may continue to reference funding it with the maximum amount that can pass free of federal estate tax.  The doubling of the federal estate tax exemption could result in significant state estate tax.  In newer plans, the funding formula may have been based upon the maximum state estate tax exemption.  With the larger state estate tax exemptions this may no longer be necessary or a desired result.  Estates below the state and federal exemption may be suitable for a simplified estate plan.  Clients should contact the Firm to review and update their estate plans.