Estate Planning Pitfall – You’re Not Taking Advantage of Your Lifetime Gift Tax Exemption

Even though the Tax Cuts and Jobs Act (TCJA) doesn’t include many revisions to estate tax laws, it does provide one major enhancement. Under the TCJA, the unified gift and estate tax exemption of $5 million, which is indexed for inflation, is doubled to $10 million. The indexed figure for 2018 is $11.18 million ($22.36 million for married couples). This means that only the wealthiest families run a risk of federal estate tax liability (although state taxes may offer additional challenges). Given the substantially increased exemption amount, consider re-examining your lifetime gift-giving strategies.

Previously, you may have been inclined to preserve your full exemption amount to offset potential estate tax liability, while making gifts using your annual gift tax exclusion. The annual gift tax exclusion applies to gifts of up to $15,000 per recipient in 2018. The amount doubles to $30,000 per recipient for joint gifts made by a married couple. Any excess lifetime gifts erode the exemption available for your estate.

That’s no longer a major concern for most individuals. For example, let’s say an elderly widow with an estate of $10 million gives each of her four children and six grandchildren $15,000 in 2018, for a total of $150,000. The gifts are covered by the annual gift tax exclusion. She also decides to shelter another $1 million in gifts to her heirs this year with the lifetime gift tax exemption. That still leaves an available estate tax exemption of $10.18 million for assets currently valued at $8.85 million.

The point is that tapping your $11.18 million exemption for lifetime gifts is less likely to result in estate tax liability. If it’s beneficial to your heirs, make additional lifetime gifts. Please reach out to our Family Wealth and Individual Tax Group with any questions you may have.

© 2018