2018 Estate and Gift Tax Update

Federal Estate and Gift Tax Exemption

The 2018 federal exemption for gift and estate taxes is $5.6 million per person.  If making a portability election, a surviving spouse can have an exemption up to $11.2 million.  The new exemption amount is increased from $5.49 million in 2017.  Estates in excess of the exemption amount are subject to a 40% tax on all assets over the exemption.  The federal generation skipping transfer tax exemption is also $5.6 million.

The federal gift tax annual exclusion is $15,000 per donor, per person.  This is increased from the $14,000 annual exclusion that has been around since 2013.  Any gift up to the exclusion amount is tax exempt and does not require a federal gift tax return, while all gifts in excess of the exclusion must be reported.  No tax will be due on gifts in excess of the exclusion so long as the donor’s federal estate and gift tax exemption is large enough to cover the gift.  All reported gifts decrease the donor’s federal estate and gift tax deduction dollar for dollar.

State Estate Tax Exemption

The 2018 Washington State exemption for estate taxes is $2.193 million per person.  The new exemption amount is increased from $2.129 million in 2017.  Washington State does not offer a portability election similar to that under the federal estate tax regime.  Estates in excess of the exemption amount are subject to a 10% – 20% tax on all assets over the exemption.  In 2017, the state legislature tied the filing threshold for estate tax returns, previously set at $2 million, to the exemption amount.  This eliminated the need to file an estate tax return where an estate was over $2 million, but under the exemption amount.

Washington State does not have a gift tax regime, unlike the federal government.  Any lifetime gifts, therefore, do not affect a Washington resident’s estate tax exemption.  A 2017 Washington State Supreme Court case, however, has added a new gift tax wrinkle.  In that case, the court ruled that any increase in the federal taxable estate due to gift taxes paid by the decedent within three years of death will also cause a corresponding increase in the Washington taxable estate.


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