The 2017 Tax Cuts and Jobs Act, doubled the federal gift and estate tax basic exclusion amount to $11.18 million in 2018 (adjusted for inflation in later years).   The Act also doubled the federal generation-skipping transfer (GST) tax exemption.  After 2025, these increases are scheduled to revert to pre-2018 levels.  Transfers in excess of the basic exclusion amount are generally taxed at 40%.

Gift tax. Gifts you make during your lifetime may be subject to federal gift tax. Not all gifts are subject to the tax, however. You can make annual tax-free gifts of up to $15,000 per recipient. Married couples can effectively make annual tax-free gifts of up to $30,000 per recipient. You can also make unlimited tax-free gifts for qualifying expenses paid directly to educational or medical service providers. And you can make deductible transfers to your spouse and to charity.

Estate tax. Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and to charity; there is a basic exclusion amount that protects up to $11.18 million (in 2018) from tax, and a tax rate of 40% generally applies to transfers in excess of the basic exclusion amount.

Portability. The estate of a deceased spouse can elect to transfer any unused applicable exclusion amount to his or her surviving spouse (a concept referred to as portability). The surviving spouse can use the unused exclusion of the deceased spouse, along with the surviving spouse’s own basic exclusion amount, for federal gift and estate tax purposes. For example, if a spouse died in 2011 and the estate elected to transfer $5 million of the unused exclusion to the surviving spouse, the surviving spouse effectively has an applicable exclusion amount of $16.18 million ($5 million plus $11.18 million basic exclusion amount) to shelter transfers from federal gift or estate tax in 2018.  The GST tax exemption, however, is not portable between spouses. Unused GST tax exemption cannot be transferred to the surviving spouse.

Generation-skipping Transfer tax (GST).  The GST tax may apply in addition to any gift or estate tax.   The federal GST tax generally occurs on a transfer that is subject to federal gift or estate tax and made to a skip person, or a transfer to a trust if all the beneficiaries with an interest in the trust are skip persons. A GST may also occur on certain distributions from trusts to skip persons. Additionally, a GST may occur when an interest in a trust terminates, and skip persons then hold all interests in the trust.  A skip person is someone who is two or more generations younger than you (for example, a grandchild). Similar to the gift tax provisions, annual exclusions (up to $15,000 per recipient in 2018) and exclusions for qualifying educational and medical expenses are available for GST tax. You can protect up to $11.18 million (in 2018) with the GST tax exemption. Transfers in excess of the GST tax exemption are generally taxed at 40%.

Le Keough, CFA, CPA, CFP®
Financial Advisor
2801 Via Fortuna, Suite 650
Austin, Texas 78746
(512)306-2560

Raymond James & Associates, Inc.  Member New York Stock Exchange
Views expressed are the current opinion of the author, but not necessarily those of Raymond James & Associates. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results.  Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Raymond James financial advisors do not render advice on tax or legal matters.  You should discuss any tax or legal matters with the appropriate professional.

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