Posted: July 11, 2018 |

Increased Exemption Amounts  

Here are the major changes brought about by the New Tax Law:

The amount that can pass gift and estate tax free has increased to $11.18 million per individual in 2018, up from $5.49 million per individual in 2017.

  • These exemption amounts will continue to be indexed for inflation each year, but by a different, less generous measure than applicable under prior law.
  • The changes will reduce the number of multimillion-dollar estates that are subject to the 40 percent federal estate tax.
  • The increased exemption amounts only apply for the next 8 years!
  • There is no assurance that they will not be changed before the end of the 8 years by future legislation.
  • In the absence of further legislation prior to that time, on January 1, 2026, the exemption amounts will revert to their pre-2018 exemption levels of $5 million, adjusted for inflation.
  • The "portability" of a deceased spouse's unused exclusion amount is still available to a surviving spouse, meaning spouses with a combined estate up to approximately $22.36 million in value at the time of the survivor's death, prior to a change in the law, or the end in 2026, will not pay estate tax with the proper planning and estate tax return elections.
  • The basis step-up rules, which adjust the basis of any asset passing from a decedent to the fair market value of that asset as of the decedent's date of death, continue to apply.    
  • In addition to the increased exemption amounts discussed above, the annual gift tax exclusion amount each person has increased to $15,000 in 2018 (up from $14,000 in 2017).

The increased exemption amounts that are available between 2018 and 2025-present a unique opportunity for estate planning. The doubling of the exemption base translates into an opportunity starting in 2018 for those who have already used their entire $5.49 million exemptions through 2017 to be able to transfer an additional approximately $5.7 million (in the case of an individual) or an additional approximately $11.4 million (in the case of a married couple) without the imposition of current gift tax or future estate or GST taxes.

For those who have not already used all of their exemptions through 2017, the unused amount will also continue to be available, with the chance that they could go away.


Review Existing Wills and Revocable Trusts

Given these changes, and the uncertainty of how long the benefits might last, we feel it is critically important for you to review the terms of your existing estate planning documents to make sure they still comport with your wishes.

  • Many Wills and Revocable Trusts that were created before 2011 created sub-trusts solely for reducing estate taxes, which based on the increase in the exclusions, need to be revisited to either modify or eliminate the sub-trust concepts.
  • With portability, the ABC trust planning may no longer be needed to shelter the unified credit of the first spouse to die, and can be slightly modified to create an income tax benefit that the older ABC trust planning did not provide (the so-called "stepped-up basis" on the second death of all trust assets).
  • Planning for the "stepped-up basis" on the second death is very important, and could reduce or eliminate capital gains taxes as the second death, for assets that have appreciated in value during the interim period between the death of the first spouse and the surviving spouse's death.  
  • If you are financially secure and reasonably confident of your ability to maintain your standard of living indefinitely, we recommend that you consider taking advantage of the increased gift tax exemption amount and possibly the GST tax exemption amount by making gifts to children and/or grandchildren, either outright or to new or existing irrevocable trusts.
  • You may also want to consider leveraging your gift and GST tax exemption amounts by making intra family loans, sales to grantor trusts, or by utilizing other techniques, such as grantor retained annuity trusts (GRATs) and split-interest charitable trusts.
  • By making gifts now, you will lock in the estate tax savings available under the new law, even if the exemption amount is lowered in future legislation or reverts back to the lower pre-2018 exemption levels in 2026.
  • In addition to other taxable gifts, you can make payments of tuition directly to an educational institution on behalf of a student, and payments of medical expenses directly to a medical provider on behalf of an individual, in unlimited amounts and with no gift tax consequence.

Conclusion: We suggest you consider a review of your current planning in light of the recent law changes.  Let us know if you wish to arrange a conference with us to discuss your particular plan.  Failing to act could result in opportunities lost.

James K. Leese

James K. Leese, Esq. is a Partner and chairs the Firm’s Estate Planning Practice Group.

His practice group dedicates themselves to all aspects of Estate Planning including Advanced Estate Planning, and Business Succession planning.

Mr. Leese may be reached by phone at (949) 608-6900 or email