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New Lifetime Estate and Gift Tax Exemption Offers Flexibility to Family Business Owners

Posted by Goldin Peiser & Peiser on Apr 3, 2018 4:00:57 AM

By Michelle Johnson

When Congress enacted the Tax Cuts and Jobs Act (the Act) in December 2017, one of the most significant changes was made to estate and gift tax law. Family businesses stand to benefit from these changes, especially as they affect family business succession planning.



The massive tax reform package doubled the federal estate and generation-skipping transfer (GST) tax exemption limits, indexed for inflation. The estate, gift and GST lifetime “exemption” increased from $5.49 million in 2017 to $11.18 million per person in 2018. Married couples can transfer $22.36 million on a combined basis.

Specifically, this is the amount of the assets that you can be pass to heirs through gifts during your lifetime, or via your estate at death. Texas does not have an inheritance tax, so there are no death-related taxes owed to the state.

One important caveat to keep in mind is that the increased exemption sunsets on Jan. 1, 2026, when the exemption limits revert back to pre-2018 levels unless Congress acts to extend the higher exemptions.

Annual Gifts 

Donors of lifetime gifts are subject to an annual exclusion amount for gifts made each year. Although not part of the Act, the gift tax “annual exclusion” increased from $14,000 in 2017 to $15,000 in 2018.  In Texas, spouses can make a gift of up to $30,000 from a community property account, without the need to file a gift tax return.


The GST tax is imposed on transfers that skip a generation, such as from a grandparent to a grandchild. This tax can be applied on top of the gift tax or estate tax and is imposed at a flat 40 percent rate. The GST tax exemption is $11.18 million for 2018.

Education Gifts

Before tax reform, Section 529 Plan distributions were limited to post-high school expenses. The new law now allows the tax-free distribution to be used for elementary and secondary school education expenses, as well.  The new law added a limit of $10,000 of distributions per student per year.

Maximize the Step-Up in Asset Basis

Typically, when a taxpayer passes away and leaves assets to their heirs, the property receives a step-up in basis to the fair market value of the asset on the date of death. The new law retains this feature. If a taxpayer's estate is under the exemption amount, consider holding appreciated assets and allowing them to transfer after death.  When the heirs later sell the assets, the taxable gain will be significantly reduced.

Rethink Your Estate Plan Strategy

The Act made significant changes that likely have a significant impact on your estate planning strategy. While any future presidential administrations can make further changes to estate tax law, family business owners now have an opportunity to transfer twice as much of their business ownership to the next generation.

If your estate assets, including the value of your business, fall between the old exemption and the new one, it will be important to plan around the 2026 sunset. If you have a revocable living trust that you drafted a while ago, this is a good time to take a fresh look at those documents and discuss them with an estate planning professional. It’s possible that those trusts were drafted to pass 100 percent of the trust assets to a “family trust.” That might have made sense when the estate exemption was lower, but under the new law, it’s unlikely that they will save you estate taxes.

Questions about estate planning under the new tax law? We would be happy to discuss your strategy with you. Contact Goldin Peiser & Peiser at 972-818-5300 or Michelle Johnson directly at 214-635-2601.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.    


Topics: General Business