Increased Exemptions for Estate Taxes in 2017, Larger Potential Changes on Horizon
Higher estate tax exemptions? Elimination of the estate tax altogether? It’s shaping up to be an interesting year for those potentially impacted by estate taxes.
The federal estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in as of the date of death, including real property, business interests, life insurance, retirement accounts, and other assets.
Each individual is entitled to an exemption from the estate tax. The federal exemption for 2017 is $5.49 million. An estate tax return is required for estates with combined gross assets and prior taxable gifts exceeding the exemption amount. Under current law, the federal exemption increases annually based on inflation. Under President Trump’s proposed tax plan, the estate tax would be eliminated altogether and replaced with a capital gains tax at death on assets in excess of $10 million. This would eliminate the current basis adjustment at death for estates of that size.
In its current form, there are significant changes to the estate tax landscape in Maryland and the District of Columbia for 2017. In recent years, both jurisdictions have enacted legislation that will increase their estate tax exemptions over time. In 2014, DC adopted legislation that would trigger certain tax cuts depending on revenue collections. DC met those revenue projections, so the estate tax exemption will increase from $1 million to $2 million for 2017. The exemption could continue to rise in the coming years depending on DC’s revenues.
Maryland also passed legislation in 2014 that increases its estate tax exemption over time. Maryland’s exemption in 2017 is $3 million (increased from $2 million in 2016). Maryland’s exemption will continue to rise in 2018 to $4 million. It will be pegged to the federal estate tax exemption in 2019.
Because of higher exemptions, fewer people will be subject to federal and state level estate taxes in the future. For others, the estate tax will require planning. For individuals who are not now subject to estate tax, it is time to review existing estate plans that incorporate some type of estate tax planning because it may no longer be applicable to their case. However, it is important to remember that tax code changes raising the exemptions could be easily undone in the future.
Will Hellams is an estate planning attorney who works with individuals and families to reduce transfer taxation, protect and preserve assets, and facilitate the transfer of assets among family members. For more information on the federal estate tax, contact Will at (301) 841-3843 or firstname.lastname@example.org.