When Congress was debating tax law reform last year, there was talk of repealing the federal estate and gift taxes. As it turned out, rumors of their demise were highly exaggerated. Both still exist and every taxpayer with a high degree of wealth shouldn’t let either take their heirs by surprise.
Exclusions and exemptions
For 2018, the lifetime gift and estate tax exemption are $11.18 million per taxpayer. (The exemption is annually indexed for inflation.) If your estate doesn’t exceed your available exemption at your death, no federal estate tax will be due.
Any gift tax exemption you use during life does reduce the amount of estate tax exemption available at your death. But not every gift you make will use up part of your lifetime exemption. For example, Gifts to your U.S. citizen spouse are tax-free under the marital deduction, as a transfer at death (bequests). Gifts and bequests to qualified charities aren’t subject to gift and estate taxes. Payments of another person’s health care or tuition expenses aren’t subject to gift tax if paid directly to the provider. Each year you can make gifts up to the annual exclusion amount ($15,000 per recipient for 2018) tax-free without using up any of your lifetime exemption. It’s important to be aware of these exceptions as you pass along wealth to your loved ones.