Property included in an individual’s estate at the time of death is subject to a tax by the federal government. There is, however, an exemption available to offset the tax, which is typically adjusted for inflation each year.
Under the Tax Cuts and Jobs Act signed into law on December 2, 2017, the federal estate tax exemption amount was doubled from $5.49 million per person for 2017 to $11.18 million per person for 2018. This lifetime exclusion is yet again on the rise.
In Rev. Proc. 2018-57, issued on November 15, the Internal Revenue Service announced a new limit for 2019. Now, an individual can pass $11.4 million to beneficiaries, tax free, whether at the end of his or her life or by gifts throughout. The number doubles to $22.8 million for married couples, though in order for the surviving spouse to claim the unused portion of their spouse, they must file an estate tax return and elect for portability.
In addition to this exemption, there’s also an annual gift exclusion component that currently stands at $15,000 per person ($30,000 per married couple). This means that an individual is able to gift up to $15,000 per donee without using any of the lifetime exclusion amount. For example, if an individual gifts each of their three children $15,000, they will have gifted $45,000 without using any of their $11.4 million exclusion. This amount will remain at $15,000 for 2019; it should be kept in mind when gifting throughout the year in order to maximize tax benefits.