February 2, 2019

Estate Tax Update

Changes to the estate tax exclusion amount require updates to your estate plan.

 

man working through financial plan documents with ball point pen
In late 2018, the IRS published updates to tax rates adjusted for inflation and taking changes enacted by the new tax law in late 2017 into account.

For estate planning, the most relevant change was the update to the estate tax exclusion amount. For decedents who die during 2019, the basic exclusion amount for estate tax been increased to $11,400,000 (up from $11,180,000 for estates of decedents who died in 2018).

The annual exclusion for gifts is $15,000 for calendar year 2019—the same as for 2018.

As can be seen from the table below, the estate tax exclusion amount has changed considerably over past decade, with the largest jump following the 2017 tax reform. This means that estate plans that made sense as recently as two years ago will need to be reviewed.

2010–2011    $5,000,000

2012    $5,120,000

2013     $5,250,000

2014    $5,340,000

2015    $5,430,000

2016    $5,450,000

2017    $5,490,000

2018    $11,180,000

2019    $11,400,000 (scheduled to revert to the 2017 amount in 2026)

Many traditional estate plans have an amount passing to beneficiaries based on the amount of the exclusion (a “formula gift”). For example, some estate plans give the “exclusion amount in trust for children with remainder to spouse.” Now that the exclusion equals $11,400,000 for 2019 this type of formula gift could cause unintended results such as disinheritance of the spouse depending on the type of formula used.

Specific planning techniques that may be considered will be the subject of a later blog post. In any event, you should take a look at your current will or living trust and see if it still meets your needs.


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