Congress Reforms Estate, Gift, and Generation-Skipping Taxes Thru 2026

We recently discussed proposed changes to the federal estate tax. Final changes have now been adopted by Congress and signed into law by President Donald J. Trump as part of a comprehensive tax reform package. Here is what you need to know about the new law as it pertains to your Florida estate planning.

Higher Exemptions, Same Tax Rate

The estate tax is a levy against the assets of a deceased person based on his or her date of death. The new estate tax rules therefore only affect the estates of persons who die on or after January 1, 2018. The estates of individuals who died during 2017 are still subject to the prior estate tax regulations.

The estate tax is actually bundled together with two other federal levies: the gift tax and the generation-skipping transfer tax (GSTT). The gift tax applies to money and property you give away during your lifetime, while the GSTT covers situations where a person leaves money in their will or trust to a grandchild or remote descendant. Both the gift tax and the GSTT are therefore designed to prevent certain types of end-runs around the estate tax.

Under the rules in effect for 2017, a person could exempt up to $5 million in assets from all three taxes. Starting in 2018, this combined exemption increases to at least $10 million, adjusted for inflation. The actual amount of the exemption is expected to be $11.2 million for 2018. The Internal Revenue Service (IRS) will continue to adjust the exemption for inflation until December 31, 2025. At that time, unless Congress decides otherwise, the exemption will revert back to the 2017 amount of $5 million.

Also keep in mind that under both the 2017 and 2018 rules married couples can effectively double their exemption. In other words, if one spouse leaves their entire estate to the other, the surviving spouse can expect to have a 2018 exemption of $22.4 million.

Although Congress increased the exemption levels for estate, gift, and generation-skipping taxes, it did not change the amount of the levy itself. The tax rate remains at 40 percent. Other basic rules, including the annual gift tax exclusion ($15,000 per recipient in 2018) and the “stepped up” basis in valuing inherited property, also remain intact.

Time to Review Your Florida Estate Planning?

While the new estate tax rules are scheduled to remain in effect until January 1, 2026, there is no guarantee a future Congress and White House will not go and change things again. And even if that does not happen, your own estate plan may still need to endure past 2026. Depending on your overall net worth, we can advise you on legal strategies to minimize your tax obligations regardless of periodic changes in the law itself. In particular, a properly structured trust may help you avoid certain levies like the generation-skipping tax altogether.

This is why it is critical to periodically review your will and trust with a qualified Fort Myers estate planning attorney. Call the Kuhn Law Firm, P.A., at 239-333-4529 today to schedule a free estate planning consultation with a member of our team.