Chapter 16 - § 16.1 • CURRENT ESTATE, GIFT, AND GENERATION-SKIPPING TAX BASICS

• Jurisdiction: Colorado

§ 16.1 • CURRENT ESTATE, GIFT, AND GENERATION-SKIPPING TAX BASICS

With the enactment of the American Taxpayer Relief Act of 2012 (2012 Act), relative stability came to the federal estate, gift, and generation-skipping transfer tax (GSTT) provisions. Then, with the Tax Cuts and Jobs Act of 2017 (2017 Act), the exemption amounts doubled, excluding most people from ever needing to plan for an estate tax.

§ 16.1.1—Basic Exclusion

The 2017 Act excludes most estates and gifts from the reach of the federal estate and gift tax. The basic exclusion from the estate, gift, and generation-skipping tax is now $10,000,000 (inflation adjusted to $11,400,000 in 2019).² Moreover, in the case of the death of one spouse, the basic exclusion for estate and gift tax purposes for the surviving spouse is increased by the amount of the basic exclusion that was unused by the deceased spouse or the estate of the deceased spouse.³ This means couples with estates/gifts under $20,000,000 (inflation adjusted to $22,800,000 in 2019) no longer face an estate tax. For example:

• If the first spouse to die had made no taxable gifts and had a taxable estate of $1,000,000, the surviving spouse (Survivor) would have an exclusion amount of $21,800,000 in 2019 (calculated based on the two spouses' basic exclusion in 2019 of $22,800,000 less the first-to-die's $1,000,000 taxable estate).
• If Survivor remarries and survives the second spouse, Survivor's exclusion amount would then be the applicable basic exclusion ($11,400,000 in this case, based on 2019 inflation adjustment) plus any unused exclusion of the second decedent spouse.⁴

Estates also pass free of federal income tax,⁵ meaning the overwhelming majority of estates now pass entirely tax free.

§ 16.1.2—Gift Tax Exclusion

The federal gift tax continues to allow an exclusion from taxable gifts of present-interest gifts⁶ in an inflation-adjusted amount of $15,000 per donee for 2019.⁷ A married couple may gift up to $30,000 per donee in 2019.⁸ Annual exclusion gifts do not reduce the applicable basic exclusion amount. In other words, gifts may be made in the amount of $15,000 per donee per year ($30,000 per donor couple per year) to an unlimited number of donees. It is only when a donor wishes to gift more than that in one year to any one donee that a gift tax return must be filed, and while no tax is then due, the reported gift will count against the donor's lifetime exemption amount (inflation adjusted to $11,400,000 per person or...