2018 Changes to Estate and Gift Tax Laws

Important Tax Provisions in The Tax Cut and Jobs Act of 2017:

  • Estate planning. Most taxpayers will never pay a federal estate tax. However, there remain many reasons to engage in estate planning. Trusts can avoid probate, provide protection from creditors and divorcing spouses, and control how beneficiaries inherit wealth. Also, many states have separate tax regimes, and individuals who reside or own property in those states should continue to plan around those taxes. (Fortunately, Arizona does not have a separate estate tax regime.)
  • Need to update documents. Because of the dramatically increased exemption from estate and gift taxes ($11,180,000 per individual as of 2018, to be adjusted for inflation), most individuals who had their estate planning documents geared to previous estate tax laws should update their documents. Their “old” A/B (taxable/tax-exempt) trust set-ups are no longer needed to avoid estate taxes. In fact, these “old” trust arrangements can now cause unnecessary income taxes and administration expenses.
  • Portability election. The portability election, which allows a surviving spouse to use his or her deceased spouse’s unused federal estate and gift tax exemption, remains unchanged.
  • Tax basis adjustment at death. The revaluing of assets inherited from a decedent to their date of death values remains unchanged. Therefore, estate planning and estate administration become more focused on income taxes than estate taxes.
  • Annual exclusion gifts. Individuals will now want to consider whether making lifetime gifts is the right tax planning strategy for them. On January 1, 2018, the gift tax annual exclusion amount will be $15,000. This annual exclusion amount will also continue to be adjusted for inflation.