2019 Estate and Gift Tax Update
posted Feb 21, 2019 by Dave Desmarais, CPA/PFS, MST, MBA, AEP® in the Global Tax Blog
2018 tax filing season is upon us! Wondering how you can maximize your estate planning this year? Here are some key changes under the Tax Cuts and Jobs Act (TCJA) that could impact you. We originally covered this last year, but there have been some changes since then, make sure you’re aware!
- Federal Estate Tax- The TCJA increased the federal estate tax to $11.18 million. This increases to $11.4 million for 2019 due to inflation adjustments. So, a married couple could have a net worth of $22.8 million before they would have to pay a federal estate tax. To the extent that someone dies with an amount exceeding the exemption level, the excess is taxed at a flat rate of 40%.
- The GST Tax- There is a “generation skipping transfer tax” applied on wealth transfers that skip a generation and exceed the individual’s “GST tax exemption”. An asset transfer from a grandparent to a grandchild, for instance, would be subject to a 40% tax. The Act increases an individual's generation skipping transfer tax exemption for transfers made after December 31, 2018, and before January 1, 2026, to $11.18 million for individuals and $22.36 million for married couples). This also increases to $11.4 million for 2019 due to inflation adjustments
- Gift Tax- For gifts made between December 31, 2018 and January 1, 2026, each individual now has a lifetime gift tax exemption of $11.4 million (which is adjusted for inflation). In addition to the $11.4 million, you may gift up to $15,000 per person per year ($30,000 per person per year for married couples) without having it count against your $11.4 million lifetime gift tax exemption. Anything exceeding the $15,000 will reduce your $11.4M Federal Estate Tax exemption.
- Dynasty Trusts- Due to higher federal gift and GST exemptions, now may be an ideal time to establish a dynasty trust. A Dynasty Trust is an irrevocable trust that allows substantial amounts of wealth to grow and compound free of federal gift, estate, and GST taxes for multiple generations. Many states allow such trusts to last for hundreds of years, though the longevity of a dynasty trust varies from state to state. Rhode Island and several other states allow these trusts to last perpetually.
- IRA Charitable Rollover- If you are over 70 ½ and own an individual retirement account (IRA), you can make a gift from your IRA directly to a qualified charity (which includes public charities, not split interest trusts, donor advised funds, private foundations, charitable gift annuities or supporting organizations). You can gift up to $100,000 per year and it qualifies as your required minimum distribution (RMD) for the year. This type of transfer does not generate taxable income or a tax deduction.
Also, don’t forget that if you’re turning 70 ½ in 2019, you have to take your first RMD—check out our blog, Are You Turning 70 1/2 in 2019? Don’t Forget to Take Your First RMD
- Rhode Island Estate Tax. The Rhode Island estate tax exemption increased to $1,537,656 in 2018, with a top Rhode Island estate tax rate of 16%.
- Massachusetts Estate Tax. The Massachusetts Estate tax exemption remains at $1 million with a top Massachusetts estate tax rate of 16%.
Bear in mind that on January 1, 2026, the increased federal estate, gift, and GST tax exemptions return to their pre-2018 levels (decreasing the exemption amounts to $5.6 million, adjusted for inflation). Make note that wealthy individuals have an opportunity to transfer significant levels of assets to family members and loved ones free of gift and GST taxes by locking in these higher exemptions these next few years.
The TCJA…So Many Changes, So Many Questions…we can help you navigate this huge tax overhaul! Visit our Tax Reform Center for everything you and your business need to know, now.
Questions on estate planning and the TCJA? Contact us.