One of the many Tax Cuts and Jobs Act (TCJA) changes adopted when filing 2018 taxes is the new estate tax exemption. The estate tax is a tax on an individual’s right to transfer property at death and includes everything owned or having a certain interest in at the date of death. Under the TCJA, the amount of the federal estate tax exemption per person more than doubled, going from $5,490,000 in 2017 to $11,180,000 in 2018. Married couples can exempt up to $22,360,000 under the new law with proper planning.
States Responding to the New Estate Tax Exemption
Over 75% of states do not impose their own estate tax, and these states follow the federal exemption amount. States such as Delaware, New Jersey and Ohio have all recoupled from their estate tax beginning January 1, 2018 and will use the federal amount going forward.
The states that do have their own estate tax are not as lenient with their exemption as the updated federal amount. Residents of those states will need to ensure they are aware of the potential impact of state estate taxes on their assets. Some states also have an inheritance tax which is separate from estate tax. Below is a chart of states that currently have an estate tax and how they have altered their exemption amount after the release of the TCJA.
Overall Impact on Individuals
Most states have not had much reaction to the estate tax exemption increase and will follow the federal’s increased amount. Some states have continued to adjust their estate tax exemption for inflation as they do every year, but the majority have not changed their exemption amount. The District of Columbia has been impacted the most as they almost tripled their estate tax exemption for 2018.
With such high federal thresholds, the vast majority of estates will not be subject to the estate tax. Because the federal exemption has increased substantially, prior estate planning should be revisited to ensure your estate plan reflects any changes in your state and the federal law.All Insights