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IRS Updates 2018 Estate and Gift Tax Limits

October 31, 2017

For 2018, every dollar, up to 5.6 million, that passes from a single individual to his/her family during life or at death will pass tax free...learn more about the 2018 estate and gift tax limits.

This just in: The IRS has updated estate and gift tax limits for 2018. These federal exemptions rise each year with inflation, and for 2018, the exemption is $5.6 million per individual, up from $5.49 million last year.

What exactly do the exemptions cover?

The estate tax exemption- This is the total amount that can pass to heirs free from the 40% estate tax on the individual’s death.

The gift tax exclusion- This is how much you are able to give away during life, free from gift tax.

What’s new for 2018?

  1. Individuals. Individuals can leave tax free inheritances of $5.6 million to heirs and thus avoid federal estate and gift tax.
  2. Married couples. Married couples can leave up to $11.2 million without worrying about federal estate and gift taxes.
  3. Gift exclusion. The annual gift exclusion amount for 2018 is now $15,000, up from $14,000, where it has been stuck since 2013. This means you are able to give away up to $15,000 free of gift tax to as many individuals as you want. For married couples, this amount doubles, so you and your spouse can make a combined $30,000 gift to as many people as you wish.

Even though this is just a $1,000 increase, it is an important change for many high net worth families who rely on annual gifting strategies to pass as much wealth as they can to the next generation.

Some things to keep in mind

  • Making gifts during your lifetime means that you must record all your taxable gifts (over and above the annual exclusion gifting), since lifetime gifts beyond the annual exclusion amount ($15,000) count towards the $5.6 million combined estate/gift tax exemption.
  • Bear in mind in order to use the 11.2 million allowance per couple, you need to
    1. Gift it away during your life,
    2. Make sure your wills allocate sufficient assets to utilize the exemption, or
    3. Elect for the surviving spouse to utilize the unused exemption on the first spouse to die’s estate tax return

Could the president change these limits?

Yes, tax reform could change all of this. President Trump’s tax reform framework, issued with the GOP last month, calls for the elimination of the federal estate tax, but nothing’s certain yet.

As things develop in the White House, we’ll keep you informed. As always, feel free to contact our Tax Services Team with any questions.

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