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Taxes & gift giving: Did recent tax reform change anything?

An estate plan accounts for more than just a transfer of assets at one’s death. It guides financial planning, health care decisions and even how we gift. Anyone that puts together an estate plan with a one size fits all mentality is unlikely to make the most of the plan. When drafted wisely, an estate plan can do more than just transfer assets — it can result in serious tax savings. 

The best way to make the most of these benefits is to stay current. Any changes to the tax code could impact the plan and trigger a need to review and adjust the plan. The Tax Cuts and Jobs Act (TCJA) passed at the end of 2017 is one such change.

The TCJA resulted in the biggest reform to the tax code in over forty years. The changes impact almost every area of taxes, including estate planning. One of the most notable changes was an increase to the federal estate and gift tax exemption to $11.4 million in 2019. The TCJA has also set the exemption rate to adjust with inflation from 2020 through 2025.

The Internal Revenue Service (IRS) will impose a 40 percent tax on any transfer over the $11.4 million exemption limit in 2019. It is important to note that this tax does not just apply to estate transfers at one’s death. The IRS will also apply the tax to gifts that exceed this amount.

The IRS will add up the value of all eligible gifts throughout the giver’s lifetime. This can include a gift of money to a loved one’s college fund given last month as well as the gift of a new home for a loved one granted ten years ago. The agency keeps a running tab of these gifts and will begin expecting tax payments if you exceed the $11.4 million limit this year.

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