Traditionally, estate planning to maximize what passes to the next generation after taxes meant planning to reduce the federal estate tax. This was accomplished by reducing the size of a person’s estate at death through a variety of planning techniques. However, an estate is subject to estate tax only to the extent the estate exceeds the estate tax exemption. Over the years Congress has been increasing the estate tax exemption. For the years 2011 through 2017, the exemption was increased to $5 million adjusted for inflation, which equated to an exemption of approximately $5.5 million in 2017 after the inflation adjustment. The 2017 Tax Cuts and Jobs Act temporarily doubles the exemption for individuals dying in 2018 through 2025. In 2026 the exemption will revert to $5 million adjusted for inflation. As a result, in 2018 the exemption will be approximately $11 million after the inflation adjustment. In 2026, when the law reverts to the prior rules, the exemption will be $5 million adjusted for inflation, which will probably result in an exemption in excess of $6 million.

In the case of a married couple, each spouse has an exemption. Therefore, in 2018 when the exemption is $11 million, with proper planning a couple would not have an estate tax liability unless their combined estates exceed $22 million because each spouse would have an $11 million exemption. Even after the exemption reverts in 2026 to the prior law, a couple would probably not have an estate tax liability unless their combined estates are more than $12 million, since each spouse will have a $5 million exemption adjusted for inflation, which would likely give each of them an exemption in excess of $6 million, or a combined exemption of $12 million.