Signed into law on December 22, 2017, the Tax Cuts and Jobs Act of 2017 contained several provisions that affect the majority of Americans, especially seniors.
General provisions include:
- reduction in the overall tax rates and
- adjustments to the brackets that determine how much income tax an individual pays,
- a new $10,000 cap on State and Local tax deductions,
- and increases in the standard deduction and personal exemption.
Of particular interest to Estate Planners and the elderly are changes to the Federal Estate Tax (FET) and Annual Gift Tax Exclusions (GET).
Before FETs become due, the gross value of your estate (what you own) must exceed the exemption amount for the year of your death. Only the amount over the exemption is taxed.
- For 2019, the threshold for estate tax was increased to $11.4 million for a single person and $22.8 million for a married couple.
- Any estate of someone who dies in 2019 with assets valued at lower than these thresholds is not subject to FET.
It is also important to remember that the estate tax exemption is “portable.”
If you are married when you die, you are allowed to transfer any unused portion of your exemption to your spouse.
- An estate valued at $5 million in 2019, has $6.8 million of exemption remaining.
- The surviving spouse’s estate is entitled to an exemption in the year of their death and can add the unused exemption, of the first spouse to die, to that figure.
In the example above, the remaining $6.8 million is allowed to pass to the estate of the second spouse to die.
While the Federal Estate Tax (FET) rate remains at 40%, the number of estates subject to the tax is expected to decrease dramatically.
In 2017 an estimated 6,500 estates were subject to Federal Estate Taxes while fewer than 2,000 estates are estimated to meet the threshold this year.
It is important to remember many states, including Maryland, have their own estate tax laws. See our article here for more information on the Maryland Estate Tax.
Annual Gift Tax Exclusions (GET)
Another important change for estate planning is the increase of the “Gift Tax Exclusion.”
The annual gift tax exclusion and annual contribution limit to ABLE accounts in special needs matters were both increased from $14,000 to $15,000.
The annual gift tax exclusion is the amount a person can gift to another individual before reporting it to the IRS is required. Only gifts of over $15,000 to a single person requires the filing of a gift tax return. The IRS uses these documents to track gifts given over time and to determine if a tax is owed on them.
ABLE Accounts
Congress also raised the amount that can be deposited into an ABLE account without jeopardizing Medicaid or other benefits as this number and the gift tax exclusion were linked at the inception of ABLE accounts in 2014.
These accounts allow those with disabilities and their families to deposit up to $100,000 into an account solely for disability-related expenses without it counting against their eligibility for Medicaid or other government programs.
After this rise, up to $15,000 can now be deposited into these accounts every year without impacting a person’s benefits.
It is important however to remember deposits for the care of someone with disabilities like an ABLE account may not incur a penalty for Medicaid of other benefit programs, but a simple gift likely will.
The tax and benefit implications of making large gifts are related and complex. It is crucial to have all of the relevant information and explore every option.
Call Abraham & Bauer at 443-901-1333 to make sure you and your loved ones are protected today.
Planning ahead is a Gift to Your Loved Ones!
Mr. Abraham is an experienced attorney and founding member of the Law Office of Richard K. Abraham. The Sparks, MD office of the firm concentrates its practice in Estate Planning, Elder Law, Probate, Medical Assistance (Medicaid), Guardianship, Asset Preservation and Fiduciary Representation.
He is an active member in a number of professional organizations that focus on law, the senior community, and estate planning. He works with clients in Central Maryland, especially in Towson, Hunt Valley, Lutherville/Timonium, Parkville, White Marsh, Bel Air & Northern Baltimore City.
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