Over the past few weeks, many clients have asked how the new tax laws passed Dec. 20 will affect them.
The new law made many changes to personal, corporate and estate taxes. In this article, I’ll focus on those changes that most directly affect estate taxes.
As it relates to estate taxes, the new tax law increases the base of the federal estate, gift and generation-skipping tax exemption from $5 million to $10 million. The new law continues to provide for adjustments to the exemption amount for inflation each year. The increase to the base exemption went into effect Jan. 1 and is set to run through Dec. 31, 2025.
In 2018, the estate, gift and generation-skipping tax exemption increases from $5.6 million to $11.2 million. The tax rate paid on amounts exceeding the exemption remains at 40%. With this change to the exemption amount, it is advisable to review your estate and gift plans in order to make sure you take advantage of the increased exemption before it is set to end on Dec. 31, 2025.
The new federal tax law does not affect the Minnesota estate tax exclusion amounts in 2018. This year, the exclusion remains $2.4 million. However, in 2019, the exclusion will be $2.7 million, and in 2020 and thereafter the exclusion will be $3 million.
In addition to this general exclusion, Minnesota has the exclusions for qualified small business property and qualified farm property. With proper estate planning, these exclusions would allow a person to exclude an additional $2.6 million of qualified farm and business property in 2018.
It is important to make sure your estate plan will allow you to use these qualified exemptions.
The new federal tax law did not change the annual gift tax exclusion amount. In 2018, a person is able to give up to $15,000 to any other person without any gift tax consequence. Also, the new federal tax law did not make any changes to the laws relating to the step-up in basis upon a person’s death. Assets passing to beneficiaries or heirs upon the death will continue to receive a step-up in basis.
When laws change, it is importation to remember that the primary goal of an estate plan is to create a plan that takes care of you, your spouse and your children in the event of incapacity and death, that allows for a smooth and easy transition of assets to your beneficiaries, and that provides the best possible tax advantage for you and your family.
Balzarini is an attorney at law with Miller Legal Strategic Planning Centers P.A. Contact him at [email protected].