The new monthly Chambliss Estate Planning Essentials brings you legal developments and other trends of vital interest in the world of estate planning. This post is brought to you by Wayne Thomas and other members of the Estate Planning Practice Group of Chambliss Law Firm.
Certainty with Inflation Adjustments and Uncertainty with Trump Tax Plan
- 2017 Estate & Tax Update -
New Year, New Updates
Each year, January 1 ushers in adjustments to various exemptions and other figures in the federal tax code. These adjustments come from inflation indexing and are a matter of certainty, since the IRS announces the new figures toward the end of each year. In this new year, January 20 will usher in tax uncertainty as we inaugurate a new President– a president who plans to repeal the Estate Tax.
There are two figures that are most important for most people's estate planning. The first is the exemption amount that a person may use to offset taxable gifts during life or at death. The second is the gift tax annual exclusion amount.
What You Need to Know about Estate Tax and Gift Tax Exemption Changes in 2017
For 2017, there has been a small increase in the exemption amount available for a person's lifetime taxable gifts or a person's estate. This exemption amount also applies to the Generation-Skipping Transfer Tax, which is a separate tax that parallels the Gift and Estate Tax and applies to gifts made in life or at death to a person of a generation more remote than the generation of a person's children.
The new exemption amount for these purposes is $5,490,000. (This is a $40,000 increase over 2016.) Note: taxable gifts made during life reduce the amount of this lifetime exemption available to a person's estate at the time of death and may also reduce this exemption for Generation-Skipping Transfer Tax purposes, depending upon the facts of the gift.
The gift tax annual exclusion amount of $14,000 remains unchanged for 2017. Therefore, this year a person may give assets valued up to $14,000 to another person without there being a taxable gift and without the need to file a gift tax return.
Limits on People/Trusts
There is no limit on the number of persons to whom one may make annual exclusion gifts. A gift made to a trust may or may not qualify for the gift tax annual exclusion, depending upon the terms of the trust.
Today you decide to give a gift to a friend or family member in the form of a $100,000 check. The gift tax "annual" exclusion amount is $14,000 and is not taxed. Since your gift exceeds $14,000, a gift tax return is required and will reflect a taxable gift of $86,000. Given that there is a lifetime exemption amount, the taxable $86,000 will reduce your exemption amount of $5,490,000 to $5,404,000. This adjusted amount can be used for further taxable lifetime gifts or used to shelter your assets from the Estate Tax at your death.
Estate Tax Uncertainty on the Horizon
President-elect Donald Trump has indicated that the repeal of the Estate Tax will be part of the tax plan he presents to Congress. He has also indicated, however, that he favors a tax at death on unrealized capital gains in assets held by a person at the time of death, with a $10,000,000 exemption for small businesses and family farms. Whether these ideas will become law is completely uncertain.
It will be interesting to see if these ideas are modified in the formal proposal that Trump actually presents to Congress. It will also be interesting to see how this part of his tax plan fares with the new Congress. We will continue to update you on this topic.