IRS Announces Increase to Federal Transfer Tax Exemption and Gift Tax Annual Exclusion

The IRS recently published Rev. Proc. 2017-58 (LINK TO https://www.irs.gov/pub/irs-drop/rp-17-58.pdf), which announces the annual inflation adjustments for certain federal tax provisions for 2018.  Among many other adjustments, the lifetime federal estate, gift and generation-skipping transfer tax exemption was increased from $5.49 million to $5.6 million.  Accordingly, the estate of an individual dying in 2018 will only incur federal estate tax if the value of the person’s assets exceeds $5.6 million, adjusted for prior taxable gifts.  For married couples, the exemption amount is effectively $11.2 million with appropriate tax planning.  The tax rate on gifts and bequests exceeding the exemption remains unchanged at 40%.

The federal gift tax annual exclusion will also increase in 2018, from $14,000 to $15,000.  Any individual may gift $15,000 to any other individual in 2018 without paying federal gift tax or filing a federal gift tax return.  Married couples may make gifts up to $30,000 per recipient each year.  Additionally, annual exclusion gifts do not use any of the donor’s $5.6 million lifetime exemption.

If you have questions regarding Federal Transfer Tax Exemption, Gift Tax Annual Exclusion, or Estate Planning matters in general, please contact Evan Monez or one of the attorneys in MPBA’s Estate Planning Department.

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