The State of the Estate Tax After Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act was signed into law on December 22, 2017. It represents the most significant tax overhaul in decades.

Although efforts by the House of Representatives to completely repeal the federal estate tax were unsuccessful, the bill signed into law doubles the amount individuals can exclude from federal estate tax.

Before the new law went into effect, each individual could transfer $5 million to their heirs without any federal estate tax liability. The exclusion amount is indexed for inflation, increasing incrementally every year. Federal estate tax is due only for amounts that exceed the exclusion amount.

Last year, the inflation-adjusted exclusion amount was $5.49 million per person, and double that for a couple. That meant that in 2016, a couple could pass almost $11 million to their heirs without any federal estate tax liability whatsoever.

So even though some politicians label the federal estate tax as a “death tax,” giving many people the impression that a tax is due anytime someone dies, in reality, the tax had been effectively repealed for 99.8 percent of the population.

Even fewer estates will have to pay any federal estate tax under the Tax Cuts and Jobs Act. With the doubling of the exclusion amount under the new tax law, each American can currently exclude over $11 million from the estate tax. That means couples can pass over $22 million to their heirs without any federal estate tax liability.

The law has a sunset provision, which means that if Congress does not pass any additional legislation regarding the federal estate tax, the exemption amount will revert to the $5 million exemption (indexed for inflation) on January 1, 2026.