2018 Changes to Federal, Maryland and D.C. Estate Tax Laws
The recently enacted federal tax legislation (the “2017 tax law”) significantly changed prior law with respect to the taxation of individuals and corporations, including changes to the estate, gift and generation-skipping transfer tax provisions. These sweeping federal law changes also impact the estate tax laws of Maryland and the District of Columbia, which are tied to federal law. A few of these changes are summarized below for residents of Maryland, Virginia and the District of Columbia. If you have any questions or are wondering how these changes may impact your particular situation, please do not hesitate to call and we will be happy to discuss the effect these changes may have on your estate plan.
- Exemption Amount. The 2017 tax law has doubled the federal basic exclusion from gift and estate tax from $5 million to $10 million for estates of decedents dying and gifts made after 2017, and before 2026. The basic exclusion amount is indexed for inflation, and thus has risen from $5.49 million to $11.2 million. This means that unmarried individuals may exempt $11.2 million from federal estate and gift tax, and married couples may exempt $22.4 million. Also, the exemption remains “portable” as between spouses, meaning that a surviving spouse may use his/her deceased spouse's unused exclusion amount if elected on a timely-filed estate tax return. In addition, the generation-skipping transfer (GST) tax exemption has increased to $11.2 million per person, but is not portable between spouses. The marginal tax rate for gift, estate and GST taxes remains at 40%. Please note that the provisions summarized above are effective January 1, 2018 through December 31, 2025, and absent further congressional action, the exemptions will sunset after that date and revert back to the law in effect for 2017 with inflation adjustments.
- Annual Exclusion for Gifts. The annual exclusion from gift tax (i.e. the amount that may be gifted annually to individuals without tax consequence) has been adjusted for inflation and has risen from $14,000 to $15,000 for 2018.
- No change to Qualified Charitable Distributions. The 2017 tax law does not affect the provisions relating to tax-advantaged charitable distributions from Individual Retirement Accounts (IRAs). Thus, charitably-inclined IRA owners who are at least 70 ½ can direct that up to $100,000 be sent annually to their favorite charities directly out of their IRAs and exclude the distributions from taxable income.
- Pursuant to legislation passed in 2014, the Maryland estate tax exemption continues to increase as follows:
- 2018 -- $4,000,000 (an increase of $1,000,000 from 2017)
- 2019 and thereafter -- the Maryland exemption will match the federal basic exclusion amount
The Maryland estate tax exemption is not portable between spouses until it aligns with the federal exemption in 2019 and thereafter. With respect to gift tax, Maryland has no state gift tax.
- Virginia repealed its estate tax in 2007 and continues to have no state estate tax and no state gift tax.
District of Columbia
- As modified by legislation enacted in 2017, the DC estate tax exemption (called the “zero bracket amount”) now matches the federal basic exclusion amount, and thus has increased from $2 million to $11.2 million per person. Unlike the federal exemption, there is no provision for portability of the DC estate tax exemption between spouses. Finally, like Maryland and Virginia, DC has no gift tax.
Although the 2017 tax law has increased the estate, gift and GST tax exemption amounts, it does not change the structure of the estate tax, nor does it change the provisions of the federal gift tax and GST tax. Irrespective of taxes, there are many nontax issues which a well-designed estate plan should address, such as guardianship of minor children, planning for loved ones with special needs, family business succession and asset protection. The arrival of the New Year and the upcoming income tax season make this an excellent time to review and update your estate plan to be certain that your personal goals continue to be achieved and to ensure that you are benefitting from the new laws. If you would like to discuss your estate plan, please feel free to call or email. We look forward to the opportunity to continue to serve you in the future.