On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

Article Highlights:

  • President’s proposed gift and estate tax changes for 2018.
  • The annual gift tax exclusion is $14,000 per recipient during the year.
  • Estate and gift tax limit would revert to 2009 levels.

If you are fortunate enough financially to be able to make significant gifts to family members and others, you may want to pay attention to the changes in gift tax law being proposed by the President.

For a number of years, the amount of tax-free gifts one could make was limited to an annual per-recipient amount of $14,000 in 2014 and an additional lifetime amount of $1 million dollars.

Those rules were liberalized beginning in 2010, when the gift and estate tax limits were unified so that the estate tax exclusion could be used for a combination of taxable gifts and estate tax exclusions. This currently permits gifts up to the estate tax exemption limit of $5.34 million for 2014 without incurring any gift tax. But gifts in excess of the annual $14,000 limit are not without future estate tax implications because a gift that exceeds the annual per-recipient exclusion reduces the estate tax exemption by the excess amount of that gift. Thus, current gifts could cause the taxable estate of the gift giver to be higher and taxed at rates substantially higher than normal income tax rates when he or she passes away.

The President’s estate and gift tax proposal would, beginning in 2018, return the estate, generation-skipping transfer (GST), and gift tax exemption and rates to 2009 levels. Thus, the top tax rate would be 45%, up from the current 40%, and the exclusion amount would be $3.5 million for estate and GST taxes, nearly $2 million less than the current exclusion amount. In addition, the lifetime exclusion for gifts would return to $1 million. The proposal makes no changes to the amount of the annual gifting limit.

Although 2018 is over three years away and there are no assurances that the President’s proposal will actually become law, its potential impact on gift giving should be considered in one’s long-term gift planning.

If you need assistance with long-term gift and estate tax planning, please give this office a call.

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