By: Anthony S. Rachuba, IV
Rachuba Law Offices, P.C.
The Internal Revenue Service (“IRS”) has announced the 2018 Federal Estate and Gift Tax Exemption Amounts. The Federal Estate and Gift Tax exemption for 2018 is $5,600,000 (up from $5,490,000 in 2017). The exemptions are increased for inflation each year. A married couple can pass a combined $11,200,000 without paying any Federal Estate or Gift Tax (up from $10,980,000 in 2017). The total value of assets a decedent owns at death which exceeds his or her exemption amount is taxed at a 40% rate. Therefore, the $220,000 increase for a married couple from 2017 to 2018 will save a married couple $88,000 ($220,000 x 40%).
The annual gift exclusion amount has been increased for the first time since 2013. Beginning in 2018, a U.S. citizen can gift $15,000 to as many persons as desired without having to report the gifts to the IRS on a Federal Gift Tax Return. From 2013 through 2017, the annual gift exclusion was $14,000. This exclusion is per calendar year, which means the same gifts can be made again in 2019 and each year thereafter. A married couple can gift up to $30,000 to as many persons as they wish without having to report the gifts as taxable gifts.
It is important for a surviving spouse to understand that he or she does not automatically have the right to use a deceased spouse’s exemption. In order to use a deceased spouse’s exemption, the surviving spouse (or the executor of the deceased spouse’s estate, if the surviving spouse is not the executor) must file a Federal Estate Tax Return (Form 706) within 9 months after the death of his or her spouse. Failing to file the Return by the 9-month deadline could possibly cause the surviving spouse to lose the ability to use the deceased spouse’s exemption amount.