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UPDATED: Congress Passes Federal Estate and Gift Tax Reform UPDATED: Congress Passes Federal Estate and Gift Tax Reform

UPDATED: Congress Passes Federal Estate and Gift Tax Reform

On December 20, 2017, Congress passed the much discussed tax reform legislation, and it is expected the President will soon sign it into law. While this law is widely considered the most sweeping tax reform of the past three decades, the changes to the federal estate, gift and generation-skipping transfer taxes are few in number, yet meaningful in their impact. In summary, the new law changes two key aspects of the existing law.
First, the new law doubles the existing estate, gift and generation-skipping transfer tax exemptions, as indexed for inflation. On March 5, 2018, the IRS released Bulletin No. 2018-10 announcing in 2018 these amounts will be $11,180,000 per person ($22,360,000 per married couple). The updated exclusion amounts reflect the IRS’s adoption of a different inflation methodology.
Second, the increased exemptions will “sunset” at the end of 2025, which means the new increased exemption amount would be revoked without further legislative action and the exemption will revert back to its current level ($5,600,000, indexed for inflation). For those with estates in excess of this amount, proactive gifting strategies ought to be considered before the sunset occurs.
Most aspects of the existing transfer tax system remain unchanged. For example, the exemption amounts will continue to be indexed for inflation, and the change to the law in 2012 allowing spouses to “port” or transfer remaining estate and gift tax exemption to a surviving spouse at death remains part of the law. The tax rate remains at 40%, and maybe most significant, the discussed repeal of the gift and estate tax and adoption of “carry-over” basis rules for inherited assets did not occur. Most assets passing at death will still receive a step-up in basis for income tax purposes.
Of course, like all legislative changes, how this might impact you and your current estate plan is specific to your situation. It may require adjustments to your estate planning documents, particularly if you tied the value of any bequests to the estate and generation-skipping transfer tax exemptions. Like you, we are continuing to analyze the law and its impact and will have more thoughts to share in the near future on this topic.
If you have questions or would like to discuss how these changes may impact your planning, please contact Kristine Bouaichi, Gina Giacone, Richard Holz, Steven Latterell, Miranda Morgan, Andrew Vento or another attorney in the Trusts and Estate Group at Ice Miller.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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