The Tax Cut and Jobs Act of 2017: How Does it Affect Your Estate Planning?Late last year, Congress finally passed the much anticipated tax reform bill, the “2017 Tax Act,” which provides many significant changes to income tax laws, but also to estate planning and gift taxes.
As with any new tax law, we strongly recommend each person or family obtain individual specific tax advice about how a new law may affect them or their circumstances.
The following is a general outline of some of the tax law changes in the 2017 Tax Act that may affect your estate plan:
No Repeal: President Trump was seeking a complete repeal of the federal estate tax and an early version of the 2017 Tax Act had repeal provisions contained therein. The Act that was finally passed however does not include any type of estate or gift tax repeal.
Estate Tax Exemption: The estate tax exemption has been doubled from $5 million to $10 million, adjusted for inflation. This increase (plus inflation adjusted since 2010) puts the estate tax exemption for 2018 at $11.2 million dollars per person. With continued inflation, the estate tax exemption should be around $16.8 million per person by 2025.
Lifetime Gift Tax Exemption (and GST): The lifetime gift tax exemption (the amount you can gift during your life time) and the GST exemption (generation skipping tax) continue to mirror the estate tax exemption. Therefore, these exemptions have also doubled to $10 million, or $11.2 million in 2018 with inflation.
Annual Gift Tax Exemption: There was no change in the 2017 Tax Act for the annual gift tax exemption. However, after 5 years of being at $14,000, the annual gift tax exemption has finally increased (due to inflation) to $15,000 per individual, per grantor, per year for 2018.
Step-Up in Basis: There was no change to the current laws regarding a decedent receiving a step-up in basis at death and the possibility of a double step-up in basis in Arizona and other community property states. This is good news, as back in 2010 when the estate tax was repealed for one year, Congress initiated a “carry-over” basis rule that had a negative effect on many families.
Portability: The 2017 Tax Act did not change the existing rules regarding spousal portability. Therefore, a married couple could effectively give up to $22.4 million dollars estate tax free utilizing both estate tax exemptions in 2018. Portability continues to be impermissible however, for GST purposes.
Sunset Provision Included in Tax Act: Like the last major tax act from 2001, the 2017 Tax Act has a sunset provision, where these new tax laws will terminate as of December 31, 2025. Obviously a new Congress could initiate subsequent changes to the tax code before we ever get to 2026, which may make the sunset provision mute. Assuming the new estate and gift tax laws expire on January 1, 2026, the estate, gift and GST exemptions will again be at $5 million, with an adjustment for inflation approximately $6.3 million per person.
If you have any questions regarding family based estate planning, these new estate and gift tax laws, or any other legal issues, please call the estate planning attorneys at Rowley, Chapman & Barney, Ltd. ( (480) 833-1113.