Estate and Gift Tax Exemptions Will Rise in 2018

The IRS recently announced inflation adjustments to various estate and gift tax items for 2018.

UPDATE: The information below is based on information released prior to the Tax Cuts and Jobs Act. For changes to the estate and gift taxes as a result of the Act, see here.

They are:

Estate Tax Exemption ("Basic Exclusion Amount")$5,600,000
Applicable Credit Amount$2,185,800
Generation-Skipping Transfer (GST) Tax Exemption$5,600,000
Gift Tax Annual Exclusion$15,000
Taxable Income Threshold at which Highest Rate Applies for Trusts/Estates$12,700

Note that all of these are increases over the 2017 numbers. A table showing the 2017 items is here.

Generally speaking, the Basic Exclusion Amount (BEA) is the aggregate amount a taxpayer may transfer, during life and/or at death, to persons other than spouse or charity without incurring estate or gift tax.  In certain cases, the BEA can be augmented by the Deceased Spouse Unused Exemption Amount (DSUEA); i.e., unused exemption the taxpayer “inherited” from a deceased spouse.

For purposes of completing a federal estate tax return (Form 706) or gift tax return (Form 709) the BEA is converted into a tax credit amount known as the Applicable Credit Amount.

The Generation-Skipping Transfer (GST) Tax is a tax separate from, but related to, the estate and gift taxes. It generally applies when property passes, during life or after death, to grandchildren or more remote descendants.

The Gift Tax Annual Exclusion is the amount that a taxpayer can transfer–in the form of a present interest–to another person without making a taxable gift. It is determined per transferee. That is, the taxpayer can transfer up to $14,000 (currently) or $15,000 (starting in 2018) to as many people as he chooses without being subject to gift tax.

As a reminder, Tennessee abolished the state gift tax in 2012. The Tennessee inheritance tax was repealed effective January 1, 2016.

Source: Rev. Proc. 2017-58

Posted by Joel D. Roettger, JD, LLM, EPLS

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