Gift and Estate Taxes After Reform

Gifting Maximums Increased

Many of our clients had been gifting (or receiving) the maximum $14,000 annual tax-free amount for years. For the first time in more than a decade, that maximum has increased and now stands at $15,000. The Tax Cuts and Jobs Act, signed into law in 2017, also nearly doubled the federal gift and estate tax basic exclusion amount to $11.18 million in 2018.

Gift tax. Gifts you make during your lifetime may be subject to federal gift tax. But not all gifts are subject to the tax. You can now make annual tax-free gifts of up to $15,000 per recipient. Married couples can make annual tax-free gifts of up to $30,000 per recipient by each giving to one person. You can give $15,000 tax free to as many people as you would like. Unlimited tax-free gifts are available when paid directly to educational or medical service providers for qualifying expenses. You also can make deductible transfers to a spouse and to charity. The basic “exclusion amount” protects a total of up to $11.18 million (in 2018) from gift tax and estate tax. Transfers in excess of that amount are generally taxed at 40%.

Estate tax. Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and to charity; and the basic exclusion amount protects up to $11.18 million (in 2018, it will be adjusted for inflation in later years) from tax. A rate of 40% tax generally applies to transfers in excess of the basic exclusion amount. After 2025, the exclusion is scheduled to revert to its pre-2018 level and be cut approximately in half. Otherwise, federal gift and estate taxes remain the same. And 17 states levy separate estate and/or inheritance taxes, with death taxes sometimes starting at the first dollar of an estate. Delaware repealed its estate tax in 2018. And New Jersey repealed its estate tax this year, but left its inheritance tax intact.

Portability. The estate of a deceased spouse can elect to transfer any unused applicable exclusion amount to the surviving spouse (which is referred to as “portability”). The surviving spouse can use whatever is left of the exclusion of the deceased spouse, along with the surviving spouse’s own basic exclusion amount, for federal gift and estate tax purposes. For example, if a spouse died in 2011 and the estate had elected to transfer $5 million of the unused exclusion to the surviving spouse, in 2018 the surviving spouse has an exclusion amount of $16.18 million ($5 million plus $11.18 million) to shelter transfers from federal gift or estate tax this year.

Blue Spark Capital Advisors

We're a fee-only Registered Investment Advisory and financial planning firm based in New York City and the Berkshires.

We specialize in working with women after divorce, death of a spouse, or other life transitions such as retirement or job change. We provide financial planning and investment management services.

We believe in a holistic approach. Movement in each piece of your financial plan impacts the others, so we consider your entire picture.

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New York, N.Y. 10010
(212) 537-3899

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Lenox, Mass. 01240
(413) 551-4445

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