Tax Reform Act Doubles Gift, Estate and GST Tax Exemptions

by Ropes & Gray LLP
Contact

Ropes & Gray LLP

Congress has passed and President Trump has signed new tax reform legislation (the “Act”). Although the Act falls short of repealing the “death tax”, it doubles the amount an individual may transfer free of tax either by gift during lifetime or at death, rendering federal transfer taxes irrelevant for all but the wealthiest of Americans.

In 2017, an individual may give or transfer at death up to $5,490,000 without paying estate or gift taxes. Under the Act, these amounts will more than double for 2018, jumping to approximately $11,200,000 per person, or $22,400,000 for a married couple.

The amount that an individual may protect from the federal generation-skipping transfer (“GST”) tax, a tax which is assessed when assets pass to grandchildren or the equivalent, will also be increased to $11,200,000 per person under the Act.

The exemptions will continue to increase annually with inflation. In 2026, the exemptions will revert to their current levels ($5,000,000 per person, adjusted for inflation).

The Act makes no other changes to the federal gift, estate and GST tax regimes, including the provision that permits the recipient of property transferred upon a donor’s death to “step up” the cost basis of the property to its fair market value on the donor’s date of death.

The increased exemptions available between 2018 and 2025 present compelling opportunities for some clients.

  • For those married couples who have already made gifts using in full the current lifetime exemption, they now have an opportunity to make additional gifts of about $11,000,000. For many this will mean adding property to trusts that they have already created, typically using both the lifetime gift and estate tax exemption and GST exemption to protect the trust property from future GST tax.
  • Clients should consider other uses of additional exemption, including forgiving family indebtedness, unwinding installment sales to family members and trusts, and unwinding split-dollar life insurance programs.
  • For residents of states such as Massachusetts that have an independent estate tax but no gift tax, property transferred by lifetime gift will avoid state level transfer taxation.
  • Note that one trade-off for making a lifetime gift with appreciated property is that the opportunity for a basis step-up at death is lost; the recipient takes the property with the donor’s cost basis for income tax purposes.
  • Clients for whom federal transfer taxes are no longer relevant should consider reworking tax and trust planning to eliminate unnecessary complexity or to move assets back into their estates to take advantage of the step-up in basis at death. However, many clients still need to consider the impact of state estate taxes.
  • Estate plans should be reviewed if bequests at death are keyed to the estate tax or GST tax exemptions.

When legislation at the end of 2010 increased the lifetime gift exemption from $1,000,000 to $5,000,000 for what was originally a two-year period, we were concerned that the gift tax savings would be clawed back if the donor died when the estate tax exemption had reverted to $1,000,000. The Act addresses this possibility, directing the Secretary of the Treasury to issue regulations that prevent such a claw back of tax savings in 2026 and later years when the gift and estate exemption is scheduled to return to its pre-Act level.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ropes & Gray LLP | Attorney Advertising

Written by:

Ropes & Gray LLP
Contact
more
less

Ropes & Gray LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.