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Estate Tax and the New Tax Act

By Alan K. Davis on December 21, 2017

As we sit on the precipice of the new tax act going into effect (it only needs the President’s signature to become law), it appears that the only transfer tax change in the Act consists of the doubling of the Section 2010(c) basic exclusion amount from $5,000,000 to $10,000,000 for transfers made and decedents dying after December 31, 2017 and before January 1, 2026. The exclusion remains subject to an annual inflation adjustment which results in an exclusion for 2018 of $11,200,000. This change applies for estate and gift tax and causes the GST Exemption to increase by the same amount. According to the estimates of the Urban-Brookings Tax Policy Center, this change is expected to initially reduce the number of taxable estates from 5,500 estates to only 1,700 taxable estates per year and reduce revenue from the Federal estate tax from $20.4 billion in 2017 to $12.6 billion in 2018. The change opens the door to a new round of planning for those taxpayers who have fully utilized their pre-act existing exclusion amounts especially because the current increase sunsets in 8 years. These planning opportunities are enhanced by the absence of any provisions aimed at reducing discounts for family controlled business interests that were included in the proposed 2704 regulations withdrawn by the IRS in late 2017. Finally, it is important to note that although up to $22,400,000 of assets per couple can now pass without estate tax, there was no change to the application of Section 1014 which allows assets in the gross estate to receive a new basis for income tax purposes equal to fair market value.