The Internal Revenue Service (IRS) recently announced the official estate and gift tax limits for 2019 will increase over the previous year from $11.18 million in 2018 to $11.4 million in 2019 which means married couples can now leave up to $22.8 million in assets to heirs without paying taxes. While the estate and gift tax has increased over last year, the annual gift exclusion amount (the amount in gifts that may be given each year without tax) remains at $15,000 for individuals and $30,000 for couples.
Recent tax reform legislation has not only decreased corporate and income taxes but also greatly expanded the estate and gift tax threshold from previously long-standing levels. For many years, the estate and gift tax limits held firm at a base of $5 million per individual with adjustments for inflation but the 2017 tax reforms passed effectively doubled that until 2024 when the provisions expire. As a result, the number of estates subject to such federal taxes has fallen to less than 2,000 in 2018 from almost 5,000 in 2013.
In order for married couples to take advantage of the full $22.8 million in estate and gift tax exemptions, they will need to utilize a concept called portability. Essentially, this allows one spouse to leave his or her unused estate tax exemption to the surviving spouse and to do you must elect it on the estate tax return of the first spouse to die, even when no tax is due. If the portability option is not exercised, the surviving spouse may be left with a hefty federal tax bill.
As for the $15,000 annual gift exclusion, this is the amount one individual can gift to another each year without that number counting towards the estate tax. For example, this means that married couples could could make $15,000 gifts to each of their four grandchildren, for a total of $120,000.
While these figures may seem only applicable to extremely wealthy people, they nonetheless serve as a reminder that every single person needs an estate plan to allocate assets to family and friends after passing away. Without proper trust and estate planning, assets may still be subject to unnecessary taxes or legal hassles by being held up in a New York Surrogate’s Court, thus depriving beneficiaries and heirs of their inheritance.