Ensuring your property is protected and your loved ones will be cared for after you’ve passed away is an important goal. However, it’s never one that’s accomplished and left alone: rules and laws are constantly fluctuating, meaning you may need to adjust your plan accordingly. Recently, these laws changed again with the passing of the Tax Cuts and Jobs Act, which goes into effect for the 2018 tax year. Let’s take a look at how the laws have changed and what you can expect from them.
Who Has to Pay Estate Tax?
The Tax Cuts and Jobs Act greatly increased the number of people who are exempt from the estate tax by extending the exemption from roughly $5.5 million to $11.2 million. That means you can pass on up to $11.2 million in assets to your loved ones completely free of estate taxes. Anything beyond this value will be taxed at 40 percent, provided you have no surviving spouse.
The Tax Cuts and Jobs Act didn’t touch the marital deduction from gift and estate taxes. What this means is surviving spouses may receive the entirety of an estate without any further taxation, regardless of its value. However, the spouse must be a U.S. citizen in order to take advantage of this deduction, and any taxes on this amount will become due when the surviving spouse passes away.
If the spouse who passes away first files a federal estate tax return, the surviving spouse may claim any of their unused exclusion, allowing the couple to pass a total of $22.4 million completely tax-free. This is known as “portability,” and it is not automatic. When the first spouse dies, the executor of the estate must file the estate tax return (even if there is no tax that needs paid) in order to take advantage of this added protection.
Lifetime gifts and gifts at death also increased to allow a total of $11.2 million, but the value of your gift is included in your total exclusion. For example, if you make a lifetime gift of $1 million, you will only be allowed to utilize $10.2 million of your exclusion.
There are some types of gifts that don’t count against this exclusion, however. Individuals may give gifts of up to $15,000 per year without it counting against their lifetime exemption. Married couples can combine their gift to make a total of $30,000 per gift per person. This is a good way for people who have a taxable estate to keep their value reduced and pass their assets on to their loved ones by avoiding taxes. These gifts can be made every year. There is no limit to the number of people you can give these gifts to.
These new estate tax laws are scheduled to sunset in 2025 without any further action from federal legislators. If your estate value exceeds $11 million in assets, you may wish to use your exemption for present gifts in case the laws do actually expire.
Do you need help arranging an estate plan that passes your assets to your loved ones and avoids losing them through high taxes? Call Pringle & Herigstad, P.C. today at (701) 599-4337 and request a case evaluation!