Effect of The 2018 Tax Law on Estate Plans

Changes to the estate and gift tax exemption resulting from the Tax Cuts and Jobs Act (TCJA) may provide additional opportunities to reduce your taxes, and may require changes to existing estate tax plans.

Beginning in 2018, far fewer estates will be subject to the 40% tax, and larger estates will owe less tax.

Before the new law, the first $5 million (as adjusted for inflation after 2011) of transferred property was exempt from estate and gift tax.Adjusted for inflation, this "basic exclusion amount" would have been $5.6 million for estates of decedents dying in 2018 and for gifts made this year.

The exclusion amount would have been $11.2 million for a married couple with proper planning and estate administration, allowing the unused portion of a deceased spouse's exclusion to be added to that of the surviving spouse.

The new law temporarily doubles the amount that can be excluded from these transfer taxes. For decedents dying and gifts made from 2018 through 2025, the new law doubles the base estate and gift tax exemption amount to $10 million.

Indexing for inflation brings this to approximately $11.2 million for 2018, and $22.4 million per married couple.

(The doubling of the estate and gift tax exemptions is set to expire after 2025; these amounts would then revert to their pre-2018 levels. Whether the exemptions actually expire or are extended will be determined by a future Congress.)

A related transfer tax called the generation-skipping transfer (GST) tax is designed to prevent avoidance of estate and gift taxes by skipping transfers to the next successive generation.

The new tax law doesn't specifically mention generation-skipping transfers, but since the GST exemption amount is based on the basic exclusion amount, generation-skipping transfers will also benefit from the increased exclusion.

This increased exclusion amount, and other changes resulting from the new law, will have an impact on your current estate plan. You should consider whether to make changes to your estate plan documents.

Please call us if you wish to discuss how the many changes in the TCJA could affect your particular tax situation, and the planning steps you might consider in response.