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Favorable Changes to Estate, Gift and GST Tax Laws Under the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (the “Act”), signed into law on December 22, 2017, significantly increased the exemption amounts for the federal estate, gift, and generation-skipping transfer taxes. These increases may present planning opportunities for individuals and families.

Under previous law, an individual could make combined transfers, in life and at death, of up to $5,000,000 (indexed to inflation; the 2017 inflation-adjusted limit was $5,490,000) without paying gift or estate taxes. The Act doubled this exemption amount for years 2018 through 2025. Accordingly, in 2018, an individual may transfer up to $11,180,000 ($22,360,000 for married couples) in combined life and death transfers without paying federal estate and gift taxes. The Act concurrently increased the exemption from the generation-skipping transfer tax (the “GST”), which is a tax imposed on transfers of assets to grandchildren and further generations.

The exemptions discussed above will continue to increase with inflation, albeit at a slower rate than under previous law. Beginning in 2026, the exemptions will revert to $5,000,000 per individual, adjusted for inflation.

The maximum estate and gift tax rate remains at 40 percent. The gift tax annual exclusion for gifts increased from $14,000 in 2017 to $15,000 in 2018 and will continue to be indexed to inflation. The gift tax annual exclusion for gifts to a non-citizen spouse is approximately $152,000 in 2018. The estates of nonresident noncitizen decedents will continue to be limited to a $60,000 exemption on U.S. situs assets.

Planning Opportunities

Clients who had previously exhausted their lifetime exemptions may now wish to make additional gifts of approximately $5,000,000 ($10,000,000 per married couple). This may mean transferring assets to an existing irrevocable trust, creating a new trust, or forgiving indebtedness from an installment sale to a trust. This may also be a good time to review core estate planning documents, especially for estate plans that specifically contemplate bequests based on estate or GST tax exemptions.

A donor may recognize several benefits to using his or her gift and GST tax exemptions to make a large lifetime gift now, rather than waiting until death:

  • Post-gift appreciation on gifted assets is removed from the taxable estate.

  • Lifetime gifts are especially useful in saving state estate taxes in states that impose an estate tax but not a gift tax (such as Massachusetts and New York).

  • Making gifts in trust, rather than outright to individual beneficiaries, allows for separation of the timing of the gift (often driven by tax motivations) from the timing of the distributions (driven by family and financial factors). In addition, using a trust can provide income and GST tax benefits, as well as creditor protection benefits. If desired, the terms of the trust can give beneficiaries significant (although not total) control consistent with enhancing tax and creditor protection goals.

There are, however, potential drawbacks to making large lifetime gifts now:

  • While the minimization of transfer taxes (gift, estate, and GST) is one goal of lifetime gift planning, it is important to understand and manage the income tax implications of such planning. For income tax purposes, assets held at death receive a “stepped-up” basis equal to fair market value. In contrast, donees receiving gifted property take the donor’s “carryover basis,” and would pay income taxes on the difference between the sale price and the donor’s basis upon subsequent disposition of the assets. In some cases, it may be desirable to continue to own low-basis assets until death, receive a step-up in basis at death, and permanently avoid income taxes on the assets’ appreciation.

  • Gifted assets may decrease in value, resulting in a waste of a portion of the donor’s exemption.

  • The assets may be needed at some point in the future.

Absent further changes from Congress, the increase in exemption will sunset at the end of 2025, meaning that donors today may transfer tax-free almost double what will be possible in 2026. While there may be some concern that current gift tax savings will be “clawed back” by the estate tax after 2026, the Act provides that the Treasury may issue regulations to address this issue.

©1994-2023 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XII, Number 98

About this Author

Peter M. Miller Estate Planning Lawyer Mintz Law Firm
Member / Chair, Private Client Practice

Peter is the Chair of the firm's Private Client Practice. He represents individuals, businesses, and charitable organizations in a broad spectrum of matters involving estate planning and administration, business income taxation, general business planning, and the creation and administration of private foundations and public charities.

Kurt R. Steinkrauss Business Attorney Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
Member / Chair, Closely Held Business Practice; Co-chair, Private Equity Practice

Kurt chairs our Closely Held Business Group and co-chairs the Private Equity Practice. He has significant experience helping individuals and families develop and implement successful estate planning strategies. Clients count on his insights on evolving gift and estate tax laws to help them manage their assets effectively. Kurt also handles a variety of corporate and employment matters. He often counsels closely held businesses, start-ups, and emerging companies on corporate governance matters as well as sales, acquisitions, and M&A transactions. Kurt is an experienced speaker and...

Susan M. Kealy Estate Planning Attorney Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
Special Counsel

Susan has extensive experience in the areas of estate planning, estate administration, trust administration, and the related areas of estate, gift, generation-skipping transfer, and income tax planning.

Her work involves counseling individuals and their families in developing and implementing tax-efficient wealth transfer strategies. In addition, Susan has substantial experience in all aspects of estate settlement and trust administration, including the preparation of estate and gift tax returns and fiduciary income tax returns.

Before joining Mintz, Susan was associated with...

Alison I. Glover Estate & Tax Attorney Mintz, Levin, Cohn, Ferris, Glovsky and Popeo

Alison’s practice focuses on estate and tax planning for high net worth individuals, their families, and their businesses. She advises clients on advanced estate planning techniques to minimize income, gift, estate, and generation-skipping transfer taxes.

In addition, she counsels fiduciaries and beneficiaries with respect to planning opportunities for trusts and estates and the resolution of disputes.

Alison also represents individuals and small businesses in tax controversies before the Internal Revenue Service and state taxing authorities. She successfully represents...

Quinn R. Hetrick Estate & Tax Attorney Mintz, Levin, Cohn, Ferris, Glovsky and Popeo

Quinn focuses on estate, tax, and business succession planning for high net worth individuals and clients with emerging wealth. He counsels clients on all aspects of estate planning: from the implementation of core estate planning documents, to complex gifting strategies designed to minimize estate and gift taxes. He also represents fiduciaries and beneficiaries in all aspects of estate and trust administration, including probate, preparation of estate tax returns, tax disputes, and trustee/beneficiary issues. 

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