Have you heard? There has been a major change in the Federal Tax Code as of January 1, 2018.  But what does it mean as far as estate planning goes?

The only real change in this regard was that the exemption for the Federal Uniform Gift and Estate Tax approximately doubled from $5,490,000 to $11,180,000 per person.  With the use of portability, married couples can now pass up to $22,360,000 estate tax-free during their lives or at death.  But beware, this is only temporary.  It drops back down to the prior level (indexed for inflation) in 2025.  Believe it or not, that’s less than eight years away.

So, if you want, you can now gift an additional $11,180,000 during your lifetime (or the next eight years, whichever comes first).  New York does not have any gift tax, but you do need to stay alive for the next three years after the gift; otherwise it is brought back into your estate for New York estate tax purposes.

For those who do not want to gift and give away their assets while they’re alive (or those who do not have that kind of wealth), there’s really very little that’s changed.  That’s because New York is not following the federal doubling of the exemption.  Currently the New York exemption is $5,250,000 and is not due to increase until 2019 to approximately $5,600,000.  That’s because it’s based on $5,000,000 in 2014 indexed for inflation.  Also keep in mind that there is no portability in New York.  This means that it takes planning to make sure that both spouses’ exemptions are used.

So, is it better now?  Of course.  If you have an estate between the $5,250,000 and the $11,180,000, you now only have to worry about New York estate tax and not Federal estate tax.  But the New York estate tax rate is still 18%.  And if you’re more than 105% over the exemption, you lose the entire exemption and have to pay the 18% on all of your estate.

The only other change for estate tax purposes is that the annual exclusion went from $14,000 to $15,000 per person per year.  That means that you do not have to tell the IRS about any gift you give that’s not over $15,000.  Anything over, you have to fill out a gift tax form so they can keep tabs on it and take it off of your lifetime exemption.  There’s no actual tax unless you surpass the lifetime exemption of $11,180,000.  As a side note, this has nothing to do with long-term care planning.  That $15,000 gift would still be considered an uncompensated transfer and subject to a penalty period in terms of Medicaid eligibility.

The takeaway? Estate planning requires just that: planning, with the help of a qualified professional. Please reach out to us to review your particular situation.