The United States federal estate tax is the tax that is placed on property transferred from a deceased person to his or her named or immediate heirs. The property that can be transferred includes real estate, stock, bonds, cash, and other assets. Since 1916, the federal government has relied heavily on the income received through estate taxes and has implemented several laws designed to prevent avoidance of paying the tax. Only affecting the wealthiest tax paying members of society, these laws have been overhauled multiple times in our history. Recently, the laws were changed again, and the following is what you need to know about the federal estate exemption for 2018.

The Exemption Amount

The exemption amount for an estate is the amount of money an estate can leave to heirs without being forced to pay federal estate or gift taxes. Initially, the maximum tax exemption per person was $650,000 in 2001. By 2017, the exemption amount had jumped to $5.49 million per person.  The latest change for 2018 raises the exemption to $5.6 million person and $11.2 million for a married couple. These exemptions are affected by inflation with the Internal Revenue Service (IRS) announcing the new figures annually.

Does Not Help Everyone

Estate taxes are only paid by the richest members of our society, meaning the majority of Americans will not benefit from the exemption change. Currently only one out of every 1,000 estates have to pay estate taxes. This means only about 0.2% of all estates within the United States will benefit from the exemption change. The majority of estates will not receive any immediate help from the change. Typically, changes to estate tax exemptions are viewed as a benefit to the rich that excludes lower income and middle class households.

Increased Opportunities

The estate exemption for 2018 carries more potential financial benefits than those immediately viewed on the surface. A couple who is able to inherit $11.2 million without paying taxes can work with financial planners and accountants to further boost their exemptions. A couple or individual who combines the new exemptions with charitable lead trusts, generation skipping trusts, and gifts that fund life insurance could double their exemption amount receiving between $11.2 and $22.4 million inheritances without paying taxes. Over the years, billionaires such as the Walton family have used estate tax exemptions combined with other maneuvering to avoid paying $3 billion in federal estate taxes.

Fewer Estates Taxed

Perhaps the most far-reaching effect of the new exemption amounts is the reduced number of estates that will be legally taxable. In 2017, approximately 5,000 estates were subject to estate taxes. Now, in 2018, only 1,800 are subject to estate taxes, meaning the federal government will receive less revenue. The funds generated through estate taxes is used to fund the Centers for Disease Control and Prevention, the Food and Drug Administration, and other valuable programs that increase opportunities for those with moderate or little income.

Get Legal Advice

If you are updating a will or estate plan, talking to a qualified trust and estate plan lawyer about these changes is important. Even if you do not believe your estate will be taxed, getting advice from an expert will protect your heirs in the event of future law changes that could impact your estate. Contact the attorneys at MMZ Law to schedule a consultation at our Claremont, California so that we can begin helping you plan for the future.




341 W. 1st St. Suite 100
Claremont, CA 91711

MARIVEL M. ZIALCITA is the founder of MMZ LAW, A Professional Corporation, where she practices in the areas of Elder Law – Medi-Cal Planning Asset Protection, Trust & Estate, Special Needs, Conservatorship, Trust Administration, & Probate. Ms. Zialcita is a frequent speaker on trust and estate matters and holds memberships in the State Bar of California, Trust and Estate Section, The San Bernardino County Bar Association, Wealth Counsel and Elder Counsel. She currently assists in the pro bono legal services program at the James L. Brulte Senior Center in Rancho Cucamonga, California. She is based in Claremont but assists clients throughout Southern California.

This information is educational information only and not legal advice.