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The new Tax Cuts and Jobs Act, signed into law in 2017, impacts many areas of the law, including estate tax exemptions. For the estates of persons dying, and gifts made, after December 31, 2017, and before January 1, 2026, the gift and estate tax exemption amounts increase to $11.2 million ($22.4 million for married couples) for 2018, with future inflation adjustments. However, exemptions are scheduled to revert to their 2017 levels (adjusted for inflation) beginning January 1, 2026, and there’s no guarantee that a future Congress will extend the exemptions or won’t reduce the exemption amounts even further.
What does all this mean? It means that you don’t need a trust for estate tax savings if you and your spouse don’t have assets over $22 million. However, if your estate planning documents contain trusts and if you don’t take action to clean the trusts out of your documents, you and your surviving spouse may be stuck with the trusts and their burdens (like asking, or answering to, a trustee or co-trustee for permission, blessing, consent, or anything else).
So, if you’re comfortable that you and your spouse don’t have assets over $22 million, talk to your attorney about whether trusts still make sense. Keep in mind that there are other valid reasons for having a trust, like you’re concerned about your spouse prudently handling money after your death, or about subsequent spouses, or about your children and grandchildren, or you’re looking for a type of asset protection, or any combination of those.
The highest ever exemption amounts also create an opportunity to take advantage of strategies for “locking in” those exemptions and permanently avoiding future estate taxes, like making lifetime gifts. By using some or all of the increased exemption amount to make additional tax-free lifetime gifts, you can shield the gifted amount, plus any future appreciation in value, from taxation in your estate, even if smaller exemptions have been reinstated when you die. Discuss with your attorney, though, the income tax issues if the gift recipient sells a gifted asset.
Other things related to the Tax Reform Act that you may want to discuss with your attorney include increased benefits from 529 Plans, “kiddie tax” changes that may be unfavorable, and, if you’re philanthropic, the increase in the adjusted gross income limitation for deductions of cash donations to public charities from 50% to 60% from 2018 through 2025.
Attorney Michael A. Henry assists individuals and families with their estate planning and tax planning needs. He is especially well-versed in designing plans for high-net-worth estates.