Estate Tax Exclusion Doubles under Tax Law

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The estate tax is a levy imposed on the transfer of property to family members or others when a taxpayer dies. This may include cash, securities, real estate, insurance, trusts, annuities, and business interests, among other assets. Assets are valued as of the date of death and are taxed at rates up to 40%. A filing is required when total assets exceeds an exclusion threshold.

 

The amount of property excluded from federal estate taxation has risen in recent years, increasing from $1.5 million in 2004 to $5.49 million in 2017. Last December's Tax Cuts and Jobs Act (TCJA) dramatically increased the exclusion. For people dying in 2018, is more than doubled to $11.18 million.

 

Since 2011, the unused exclusion of a spouse who dies can be transferred to that spouse's widow or widower. This is known as "portability." Combined with TCJA's exclusion increase, this lets a family shield up to $22.36 million of its assets ($11.18 million for each spouse) from the estate tax. For example, assume a husband with an estate of $2 million dies in 2018. With portability, his unused exclusion of more than $9 million passes to his surviving widow and is added to her own exclusion of more than $11 million. If she dies later in 2018 with an estate of $20 million, her estate will owe no federal estate tax. Had the couple died under the same circumstances in 2017, their estates would have owed over $4.4 million.

 

The $11.18 million estate tax exclusion will be adjusted for inflation after 2018. However, due to budgetary constraints, Congress made the TCJA estate tax changes temporary. The doubled exclusion will expire for deaths occurring after 2025, returning to its pre-TCJA level.

 

Some states also have estate taxes, and not all have adopted the higher federal exclusion. New York, with estate tax brackets up to 16%, has a $5.25 million exclusion (like the federal, it will be adjusted for inflation starting in 2019). A New York estate with assets above that figure may have a state liability even if it falls under the federal exclusion. New Jersey repealed its estate tax in 2018, but retains the related inheritance tax. Florida has no estate tax.

 

Call your LMC professional if you have questions about how to best take advantage of the historically large estate tax exclusion.

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