What Is The New Lifetime Gift and Estate Tax Exemption Amount, Anyway?

You undoubtedly are aware that among the changes found in the new tax law is a doubling of the lifetime exemption for federal gift, estate, and generation skipping transfer taxes. This doubling is effective January 1, 2018 and is set to expire December 31, 2025.

Since this exemption was scheduled to become $5.6 million without the new tax law, the popular press has leapt to the conclusion that the new exemption amount is twice that figure or $11.2 million. While $11.2 million may be close to the truth, it may not be exactly right.

What the new tax law actually says is that the “basic exclusion amount” is changed from $5 million to $10 million. This $10 million is then adjusted for inflation for the years since the basic exclusion amount was established in 2011. The new tax law also adopts a new cost-of-living adjustment for this purpose called the “Chained Consumer Price Index for All Urban Consumers.” Using this information, two attorneys have computed the new lifetime exemption amount to be $11.18 million rather than $11.2 million, although they are careful to label their amount unofficial. (See https://www.natlawreview.com/article/new-tax-bill-brings-changes-estate-gift-and-generation-skipping-taxes-2018.)

The difference between $11.2 million and $11.18 million is highly unlikely to affect any donor’s estate plans, but it’s a detail to be aware of should anyone ask. We expect that the IRS will provide the official transfer tax exemption amount for 2018 soon, which will remove any uncertainty over what the precise amount is.