The State of the Estate Tax After Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act was signed into law on December 22, 2017. It represents the most significant tax overhaul in decades.

Although efforts by the House of Representatives to completely repeal the federal estate tax were unsuccessful, the bill signed into law doubled the amount individuals can exempt from taxation.

Before the new law went into effect, each individual could transfer $5 million to their heirs without any federal estate tax liability. The exemption amount was indexed for inflation, increasing incrementally every year, and estate tax was due only for amounts that exceeded the exemption amount.

Last year, the inflation-adjusted exemption amount was $5.49 million per person, and double that for a couple. That meant that last year, a couple could pass almost $11 million to their heirs without any federal estate tax liability whatsoever.

So even though some politicians label the federal estate tax as a “death tax,” giving many people the impression that a tax is due anytime someone dies, in reality the tax had been effectively repealed for 99.8 percent of the population.

Even fewer estates will have to pay any federal estate tax under the Tax Cuts and Jobs Act. With the doubling on the exemption under the new tax law, each person can currently exempt over $11 million from the estate tax. That means couples can pass over $22 million to their heirs without any federal estate tax liability.

The law has a sunset provision, which means that if Congress does not pass any additional legislation regarding the federal estate lax, the exemption amount would revert to the $5 million exemption (indexed for inflation) in 2026.

 

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