House Republicans unveiled the full text yesterday of their proposed tax legislation—titled the Tax Cuts and Jobs Act—which includes dramatic changes to the gift, estate, and generation-skipping transfer (GST) tax. The highlights are outlined below.

  • The bill states that, effective January 1, 2018, the amount exempt from gift, estate, and GST taxes will increase to $10 million per person, or $20 million per married couple. (The current exemption is $5.49 million per individual. It is possible that the 2018 increase would be to $11.2 million per individual and $22.4 million per married couple.)
  • The estate tax and the GST tax are repealed in their entirety as of January 1, 2024. The gift tax is not repealed, but in 2024, the top rate will be reduced to 35%.
  • The annual gift tax exclusion amount ($14,000 for 2017; $15,000 for 2018) is not changed. It appears that the annual exclusion amount will continue to be indexed for inflation.
  • Tax basis rules will continue as before. Inherited property will receive a stepped-up tax basis, even after the full estate and GST tax repeal. Gifted property will retain the donor's tax basis with no step-up.

Results

If the tax bill were to be enacted in its current form:

A married couple could make at least $20 million in combined lifetime gifts and transfers at death before paying any gift, estate or GST tax.

  • For individuals who die after January 1, 2024, there will be no estate or GST tax of any kind, and no capital gains tax on appreciated assets if held until death.
  • Lifetime gifts—particularly gifts in excess of the exemption amount—may not be favorable for tax purposes and will require careful consideration. Gifts of cash or other non-appreciated assets will continue to produce better tax results than gifts of appreciated assets.

It is important to note that the bill is only the first step in changing the tax code. It will be analyzed and debated in the coming weeks. We cannot anticipate whether the tax bill will become law, and, if it does become law, which of the above provisions will remain in the final form. We will continue to monitor the bill as it moves through the legislative process and will post updates on developments in the proposed law on our website.

If you would like to discuss the proposed tax bill, please contact a member of our Family Wealth Management Group.


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.






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