The slogan for many with the turn of the year has been “New Year, New Me”. In homage to this phrase, the time has come to address “New Year, New Tax Changes”. Tax changes affect most, if not all, of financial planning and that is why it is important to be conscientious of changes, especially with regard to the estate tax.
Federal Estate Tax
For 2018, the Federal Estate Tax along with the Lifetime Gift Tax exemptions reached a record $11.18M. This year, the exemption will increase to $11.4M. For a couple, that can mean their exemption can reach $22.8M before estate taxes would come into play. With exemptions so high, roughly only 2 out of every 1,000 estates face the Federal Estate Tax.
Annual Gift Tax
The annual gift exemption stays the same for the 2018-2019 year. This means that an individual can give up to $15,000.00 per year to as many individuals that they would like without having to report the gift. There are some gifts that can be excluded as long as IRS guidelines are followed. For example, one can pay for someone else’s tuition or medical expenses as long as those payments go directly to the institution. Gifts to spouses and political organizations are also excluded. If a couple wants to make a gift to one individual together, they have the ability to give $30,000.00 to that person before they are required to report the gift and/or potentially pay tax.
Minnesota Estate Tax Exemption
Minnesota increased its estate tax exemption from $2.4M in 2018 to $2.7M this year. In 2020, this tax exemption limit will increase to $3.0M.
Does this Affect my Estate Plan?
It is always important to review an estate plan to ensure that it is consistent with the new exemption amounts. Changes in exemptions may affect charitable planning and gifting within one’s lifetime. Even if these exemptions don’t affect everyone, it can be valuable to ask the question, “New Year, New Estate Plan?” Whether an estate is big or small, a lot can happen in a year and it is important to make sure that the plan still correlates with current wishes, and aims to minimize or avoid estate taxes, if possible.