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2018 Estate Tax Summary

2018

I previously provided summaries of estate and gift taxes for 2013, 2014, 2015, 2016 and 2017. Unlike the minor changes of the prior few years, 2018 brings major federal tax law changes via the “Tax Cuts and Jobs Act” signed late 2017, which includes significant changes to Federal estate, gift and generation-skipping transfer taxes.

Here is an executive summary of the Federal and Illinois estate, gift and generation skipping tax exemptions and rates for 2018:

Federal Estate Tax
  • 2018 Exemption Equivalent: $11,200,000* (up from $5,490,000 in 2017)
  • Annual Inflation Indexing: Yes* (rounded annually to the nearest $10,000)
  • Portability of unused exemption to surviving spouse: Yes (by timely election on Form 706 Estate Tax Return of deceased spouse)
  • Rate: 40% (flat rate on taxable estate above exemption)
Federal Gift Tax (unified)
  • Lifetime Gift Tax Exemption: $11,200,000* (total lifetime taxable gifts)
  • Annual Inflation Indexing: Yes (rounded annually to the nearest $10,000)
  • Annual Gift Tax Exclusion: $15,000 (up from $14,000 in 2017; increased by inflation indexing in $1,000 increments)
  • Rate: 40% (flat rate on gifts above exemption)
Federal Generation-Skipping Transfer (GST) Tax (unified)
  • GST Exemption: $11,200,000 (minus lifetime GST exemption used)
  • Annual Inflation Indexing: Yes (rounded annually to the nearest $10,000)
  • Portability of unused GST exemption to spouse: No
  • Rate: 40% (flat rate on GST transfers above exemption)
Illinois Estate Tax
  • Estate Tax Exemption: remains at $4,000,000 for 2018 (not scheduled to rise)
  • Inflation Indexing: No
  • Gift Tax: None
  • Portability of unused exemption to spouse: No
  • Rate: Varies (effective rate up to around 28.5%)
Federal Trust and Estate Fiduciary Income Tax
  • Tax Brackets: 10% up to $2,550; 24% between $2,550 and $9,150; 35% between $9,150 and $12,500; 37% over $12,500.
  • Marginal Rate: 37.0% top rate applies to trust-retained income over $12,500.
  • Medicare Surcharge: Top rate is subject to 3.8% Medicare surcharge tax on net investment income
  • Pass Through: Income generally passed through to beneficiaries via K-1 to the extent of distributions

* These changes in the “Tax Cuts and Jobs Act” are due to ‘sunset’ on January 1, 2026. Estate, Gift and GST exemption will revert back to $5 million plus inflation-indexing back to 2011. Absent future changes, this will result in an exemption of approximately $6.2 million in 2026.

What does it all mean?

In the coming weeks, I’ll share my thoughts on these changes and its impact on estate planning for Illinois residents. I also intend to highlight some subtle, but important, tax developments affecting other estate planning-related areas: education, disability, retirement and charitable planning.

There are also some new Illinois laws for 2018 affecting trusts and estates. Watch for new blog posts in the coming weeks highlighting these developments as well.

Happy New Year 2018 to all!