The new tax law that went into effect on January 1, 2018 is known as the “Tax Cuts and Jobs Act” (“TCJA”), or Reconciliation Act of 2017, or 2017 Tax Act. The following will provide a brief overview of transfer tax changes under TCJA. The following is not all-encompassing and should not be relied on for guidance but is being provided for informational purposes only. Always check with your professional advisors before taking any particular action. Finally, the following is intended to be very brief and provide only a general overview.
- The federal Estate Tax/Gift Tax/GST Tax Threshold is now $10M before taking into account the inflation adjustment.
- This tax threshold is indexed by Chained CPI (so the threshold will adjust upwards each year).
- More formally known as Chained Consumer Price Index (C-CPI-U) – this method of calculating an inflation adjustment results in inflation increasing at a slower rate than the regular CPI method we’ve been used to.
- With Chained CPI, it is expected that the 2018 tax threshold for the federal Estate/Gift/GST Taxes will be $11.18M.
- Because of how Chained CPI is calculated, we won’t know for a while longer the exact number to use for 2018 (we should hear in the next month or two).
- Remember – the Massachusetts Estate Tax threshold of $1M remains unchanged.
- Based on TCJA, the federal Estate Tax/Gift Tax/GST Tax Threshold will revert back to $5M at the end of 2025 (but the Chained CPI will still apply so the threshold number will be higher than $5M).
- Specific Notes Regarding the Federal Gift Tax:
- The estate planning community is questioning what will happen if a person makes a gift in the next 10 years and then dies after 2025 (when the Gift Tax reverts back to $5M+). There is a question whether the IRS will be able to ‘clawback’ gifts made between 2018 to 2025 that were more than what the estate tax threshold is after 2025 (e.g. $5M+), thereby exposing gifts more than $5M+ to an estate tax. Although it is generally believed that a ‘clawback’ won’t apply, there is no certainty at this time.
- Also of note, the Joint Committee on Taxation gives Treasury the ability to issue regulations on this, so we may have clarity on this issue at some point (hopefully!).
- Making lifetime gifts continues to generally make sense when it is important to get future appreciation out of a person’s estate.
- You can now make annual exclusion gifts of up to $15K per person/per year (in 2017, it was $14K).
- Bottom line – When doing gifting, please make sure to consult with your advisors so that you can discuss the pros and cons to making a taxable gift.
- The estate planning community is questioning what will happen if a person makes a gift in the next 10 years and then dies after 2025 (when the Gift Tax reverts back to $5M+). There is a question whether the IRS will be able to ‘clawback’ gifts made between 2018 to 2025 that were more than what the estate tax threshold is after 2025 (e.g. $5M+), thereby exposing gifts more than $5M+ to an estate tax. Although it is generally believed that a ‘clawback’ won’t apply, there is no certainty at this time.
