Darrell KSR
10-22-2017, 02:35 PM
No estate tax due on any estate of less than $5.6 million per person, or $11.2 million per couple, for 2018. That is an increase from $5.49 million in 2017 ($10.98 million per couple).
Also, the gift tax annual exclusion (the amount you can give away every year, per donee, without using any of your exemption/credit) has increased to $15,000.
As an example, let's say you have a 75 year old married couple with 3 children, all married, and they have 3 children each (9 grandchildren).
If that 75-year old couple wanted to start making gifts, and begin the wealth transition from their generation to the next (and the one after), and had a taxable estate (let's say they were worth $15 million), rather than paying taxes, they could begin a gift-giving program.
This year the annual exclusion is $14,000, but we'll pretend it's $15,000 for easier math (as it will be January 1). Since this is late October, it's a great time to consider this.
They give $15,000 to each of their three children, maybe as a Christmas gift. Or better yet, give them $30,000 in two checks, with one of them dated January 1 so it can't be deposited until after the next year begins.
That's $30,000 for Child 1, Child 2, and Child 3. There's $90,000 distributed tax-free, without using any of the credit.
Then they do the same for Child's Spouse. Spouse 1, Spouse 2, and Spouse 3. Another $90,000.
And the same for Each of the grandchildren--for 1 through 9. That's another $270,000. So we're at $450,000 in the matter of a few weeks transferred gift and estate tax-free.
But wait--that's just one of them. 75-year old Grandfather and 75-year old Grandmother can each do this. Or they can elect to gift-split, so they don't have to each write a check. Regardless, now instead of $450,000, it's $900,000 transferred without using a gift tax credit, reducing the estate tax potentially due.
So we've taken the $15 million down to $14 million. Only what is over $11.2 million is taxed. So we'll have $2.8 million to worry about over the next few years. But we can continue to do the annual gift exclusion year after year. Won't take long.
(And of course, I should have said they had a net estate of $15 million. Any liabilities would reduce the taxable amount, possibly to zero already. And expenses also can be deducted of the estate).
I used to do a lot of estate planning. There are a lot of things you can do besides this simple gift-giving program (also includes selection of gifts--if you can figure out the assets that will appreciate in value, those are ideally suited to give away. Plus membership interests in family limited liability companies, or family limited partnerships can let you discount the value of the underlying assets by 30-40% because of lack of marketability and lack of control when gifting minority interests. Just all kind of cool things).
Anyway, when I started, the estate and gift tax exemption was $600,000 per individual. Plenty of people who owned a house, a 401(k) or other retirement, and maybe a little life insurance had need for estate tax planning.
Today? Not so much. I need more clients in the $15 million and up range. But I suspect soon we won't have to worry about the estate tax or gift tax, as it will go away. The estate tax has been eliminated three times in our country over the years, and I think the 4th time will be coming soon. Will probably return sometime, but maybe not in my working lifetime.
Also, the gift tax annual exclusion (the amount you can give away every year, per donee, without using any of your exemption/credit) has increased to $15,000.
As an example, let's say you have a 75 year old married couple with 3 children, all married, and they have 3 children each (9 grandchildren).
If that 75-year old couple wanted to start making gifts, and begin the wealth transition from their generation to the next (and the one after), and had a taxable estate (let's say they were worth $15 million), rather than paying taxes, they could begin a gift-giving program.
This year the annual exclusion is $14,000, but we'll pretend it's $15,000 for easier math (as it will be January 1). Since this is late October, it's a great time to consider this.
They give $15,000 to each of their three children, maybe as a Christmas gift. Or better yet, give them $30,000 in two checks, with one of them dated January 1 so it can't be deposited until after the next year begins.
That's $30,000 for Child 1, Child 2, and Child 3. There's $90,000 distributed tax-free, without using any of the credit.
Then they do the same for Child's Spouse. Spouse 1, Spouse 2, and Spouse 3. Another $90,000.
And the same for Each of the grandchildren--for 1 through 9. That's another $270,000. So we're at $450,000 in the matter of a few weeks transferred gift and estate tax-free.
But wait--that's just one of them. 75-year old Grandfather and 75-year old Grandmother can each do this. Or they can elect to gift-split, so they don't have to each write a check. Regardless, now instead of $450,000, it's $900,000 transferred without using a gift tax credit, reducing the estate tax potentially due.
So we've taken the $15 million down to $14 million. Only what is over $11.2 million is taxed. So we'll have $2.8 million to worry about over the next few years. But we can continue to do the annual gift exclusion year after year. Won't take long.
(And of course, I should have said they had a net estate of $15 million. Any liabilities would reduce the taxable amount, possibly to zero already. And expenses also can be deducted of the estate).
I used to do a lot of estate planning. There are a lot of things you can do besides this simple gift-giving program (also includes selection of gifts--if you can figure out the assets that will appreciate in value, those are ideally suited to give away. Plus membership interests in family limited liability companies, or family limited partnerships can let you discount the value of the underlying assets by 30-40% because of lack of marketability and lack of control when gifting minority interests. Just all kind of cool things).
Anyway, when I started, the estate and gift tax exemption was $600,000 per individual. Plenty of people who owned a house, a 401(k) or other retirement, and maybe a little life insurance had need for estate tax planning.
Today? Not so much. I need more clients in the $15 million and up range. But I suspect soon we won't have to worry about the estate tax or gift tax, as it will go away. The estate tax has been eliminated three times in our country over the years, and I think the 4th time will be coming soon. Will probably return sometime, but maybe not in my working lifetime.