Proposed Changes for Estate, Gift and Generation-Skipping Taxes Introduced in Tax Cuts and Jobs Act

UPDATED as of November 16, 2017: On November 16, the US House of Representatives passed its version of the Tax Cuts & Jobs Act. On that same day, the Senate Finance Committee approved its tax plan, although the statutory language of the bill was not released.

The House-passed legislation included the estate, gift and generation-skipping tax changes described below—doubling of the exemption base, repeal of the estate and generation-skipping taxes beginning in 2025 and a drop in the gift tax rate from 40 percent to 35 percent starting in 2025.

The Senate plan does not call for the repeal of these taxes at any time. It mirrors the increase in exemptions under the House bill, but starting in 2026, the exemptions would revert back to the pre-2018 levels, although they would continue to be indexed for inflation.

Under both the House and Senate versions, indexing is based on a different measure called the “chained CPI.” The Congressional Budget Office expects that inflation measured by the chained CPI will be about 0.25 percentage points lower compared to the results using the traditional CPI adjustment. Our unofficial calculation of how this impacts the estate, gift and generation skipping exemptions for 2018—if the legislation as proposed is enacted—is that those exemptions would be $11.18 million, just slightly less than the $11.2 million figure that would apply using the traditional CPI measure.

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The Tax Cuts and Jobs Act introduced by House Ways and Means Committee Chairman, Kevin Brady, on November 2, 2017, if enacted in its current form, would make the following changes to the federal estate, gift and generation-skipping tax regimes:

1. After December 31, 2017, the estate, gift and GST exemptions each increase to $10 million, plus the inflation adjustment applicable under current law. As the previously announced inflation adjustment figure for 2018 is $5.6 million, the new exemption figures starting January 1 would be $11.2 million.
2. Other than the exemption figures, the estate, gift and GST tax regimes would remain unchanged until 2024.
3. Effective January 1, 2024:

• The estate and GST taxes would be repealed;
• The step-up in basis for assets held at death would be retained; and
• The gift tax rate would drop from 40 percent to 35 percent.

Please stay tuned for further developments as these provisions may change or be eliminated as the tax legislation moves through Congress.