As Congress and President Trump pursue their stated goal of passing sweeping new tax legislation before the end of the year, many taxpayers are wondering how proposed tax reform will affect estate planning; specifically, the future of gift, estate and (generation-skipping-transfer) GST taxes.
Potential estate tax law changes are emerging
Under current law, the combined federal gift and estate tax exemption, and the GST tax exemption, is $5.49 million. The top tax rate for all three taxes is 40%. The annual gift tax exclusion is $14,000. That means you can reduce your taxable estate by making tax-free gifts of up to $14,000 per year to an unlimited number of people without tapping your lifetime gift and estate tax exemption.
The U.S. House version of the Tax Cuts and Jobs Act that passed on November 16 increases the exemptions to $10 million (adjusted annually for inflation) and repeals the estate tax after 2024. It also terminates the GST tax at that time. Under the bill, the annual gift tax exclusion stays in place (at $15,000 for 2018 due to inflation indexing), and after 2024 the gift tax is retained but the rate falls to 35%.
The Senate’s version of the bill (as initially approved by the Senate Finance Committee) would also double the exemption for gift and estate taxes. It doesn’t address the GST tax, though, and makes no mention of repealing the estate tax. The full Senate will be addressing the bill after the Thanksgiving recess.
All eyes are on Congress
With the disparity between the House and Senate approaches to the estate tax, some prognosticators doubt a final reconciled bill will include an estate tax repeal. And it’s worth noting that the tax has been repealed in the past, only to be resurrected when party control subsequently changed hands in Washington.
At this point, the question of whether any tax bill will pass is still up in the air. But we can help you chart the best course to accomplish your estate planning goals under current and future tax provisions.
