By Randall A. Denha
On December 22, 2017 the President signed the Tax Cuts and Jobs Act (“Act”). The Act will have a significant effect on individuals and businesses at all income levels for years to come. Following is a summary of how the Act may affect your estate plan.
Estate and Gift Tax Exemptions Doubled – But Not Repealed
For 2018, the estate, gift and generation skipping transfer (GST) tax exemption would have been $5.6M for a single person ($11.2M for a married couple). The Act doubles those amounts ($11.2M for a single person and $22.4M for a married couple). These amounts are indexed for inflation. However, on January 1, 2026, the exemption will return to $5.6M ($11.2M for married couples) as indexed for inflation from 2018 to 2025.
Same Rates and Basis Step-Up
All transfer tax rates remain the same with a 40% top tax rate for the gift and estate tax and a 40% flat rate for the GST tax and Estate assets will continue to receive a step-up in income tax basis to their fair market value on the date of death.
Planning Considerations for Taxable Estates
Prior to the Act, less than 1% of taxpayers paid estate taxes. Therefore, the doubling of the estate, gift and GST tax exemption will benefit few taxpayers. But for those persons with estate over $20 million, instant doubling of the gift and GST tax exemption offers tremendous wealth transfer planning opportunities for the next eight years, particularly for those persons who have already used a significant portion or all of their gift and/or GST exemption.
Planning Considerations for Non-Taxable Estates
For the 99.8% of the country with estates below the federal estate tax exemption, the focus on estate planning will continue to be:
- Avoiding the costs, delays and publicity of probate in the event of death or incapacity
- Making certain what they have goes to who they want, when they want, and how they want
- Protecting heirs from their inability, their disability, their creditors and their predators (including ex-spouses)
- Making end of life decisions
- Guardianship for minor or developmentally disabled children
- Retirement planning
- Asset management
- Asset protection
- Planning for blended families
- Capital gain tax planning, especially to take best advantage of the step-up in basis at death.
If you have any questions on how the new tax laws may impact your estate or business succession plan, please feel free to contact me to learn more.
We wish you and yours a happy, healthy and prosperous New Year.
Randall A. Denha