Estate and Gift Tax Planning for 2018 – After TCJA

John (Rusty) Davis, CPA

The Tax Cuts and Jobs Act (TCJA) made changes that taxpayers should consider when making or reviewing their estate plans, including:

The TCJA doubled the estate and gift tax exemption, now increased to $11,180,000 in 2018. However, this doubling only applies for 2018 through the end of 2025. The doubling and its temporary nature both provide a motivation to draft documents that refer to general terms-like “the federal estate tax exemption in effect at the time of death”, rather than specific dollar amounts.

Annual Exclusion for Gifts. The annual exclusion from gift tax (i.e. the amount that may be gifted annually to individuals without tax consequence) has been adjusted for inflation and has risen from $14,000 to $15,000 for 2018.

Review documents for any reference to the exemption amount in an estate planning document that was drafted before the enactment of the TCJA doubled exemption that could create an undesirable result. Thus, if a will drafted before enactment of the TCJA provides that a trust should receive the “unused portion of the federal estate tax exemption,” that the beneficiaries of that trust are the decedent’s children and not his spouse, and that the spouse receives the residue of the estate. It may not be the wish of the decedent to fund that trust with the new $11 million-plus exemption. If, for example, the estate is only worth $13 million, the residue will be less than $2 million, rather than the over-$7-million amount that would have been the residue under pre-TCJA law.

Know your resident State estate exemptions:
Maryland – Pursuant to legislation passed in 2014, the Maryland estate tax exemption con-tinues to increase as follows:
2018 — $4,000,000 (an increase of $1,000,000 from 2017)
2019 and thereafter — the Maryland exemption will match the federal basic exclusion.
The Maryland estate tax exemption is not portable between spouses until it aligns with the federal exemption in 2019 and thereafter. With respect to gift tax, Maryland has no state gift tax.

Virginia – Virginia repealed its estate tax in 2007 and continues to have no state estate tax and no state gift tax.

District of Columbia – As modified by legislation enacted in 2017, the DC estate tax ex-emption (called the “zero bracket amount”) now matches the federal basic exclusion amount, and thus has increased from $2 million to $11.2 million per person. Unlike the federal ex-emption, there is no provision for portability of the DC estate tax exemption between spouses. Like Maryland and Virginia, DC has no gift tax.