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Estate Planning under the new Tax Code and Jobs Act or “Trump Tax Plan”

59f9ca4e9d2ac.imageI’ve received many calls and e-mails from clients about whether there is a need to address pre-existing estate plans in the wake of the new changes that were recently signed into law by President Trump. While for most clients no changes will be necessary there are important things to consider.

Under the new Tax Cuts and Jobs Act most taxpayers “will never pay a federal estate tax,” however with the expanded exemption many reasons exist to engage in estate planning.

The Tax Cuts and Jobs Act of 2017 increases the federal estate, gift and generation-skipping transfer (GST) tax exemptions to $10 million (indexed for inflation) per person beginning on Jan. 1, 2018. Remember that this is NOT a “per couple” exemption, as a married husband and wife this amount is $20 million per couple (again indexed for inflation).

The exemptions are scheduled to sunset effective Jan. 1, 2026, with reversion to current federal law. Of course, possible repeal of the tax law in a subsequent Congress is always on the table, so please keep abreast of any changes that occur and if you have any questions our staff here at Lenza Law Firm, PLLC will be happy to answer any appropriate questions.

But as the law stands now, high-net-worth clients and their advisors should pay close attention to the following areas:

  • Estate planning.  As always, Trusts can provide protection from creditors and divorcing spouses and provide control over how beneficiaries inherit wealth (particularly important for families with spendthrift, mental illness and addiction considerations) and help preserve wealth for generations. it is always important to communicate with your planner about properties held out of state, as some states do have specific estate tax and inheritance tax rules.
  • Portability election. As mentioned above, he portability election, which allows a surviving spouse to use the deceased spouse’s unused federal estate and gift tax exemption, is unchanged. This means a married couple can use the full $20 million exemption (indexed for inflation).
  • Estate tax exposure. For very high net-worth clients who will still have federal estate tax exposure and clients who live or own property in states with their own estate tax, the traditional wealth transfer strategies will still be useful. Clients will want to review their federal estate tax exposure under the new rules.
  • Basis step-up at death. The step-up in tax cost, by which a decedent’s assets obtain a step-up in their tax cost to their fair market value at the date of death, is not changed. With the step-up in tax cost retained and a much higher federal estate tax exemption, income tax planning becomes a much more important element in estate planning and estate administration.
  • Annual exclusion gifts. Individuals will want to consider whether making gifts during their lifetimes is the right tax planning strategy for them. The gift tax annual exclusion amount is $15,000. The gift tax annual exclusion amount remains subject to an inflation adjustment.

So from this practitioner’s humble perspective, in terms of Estate Planning this new law has not changed any of the important strategies and tools used to preserve wealth and ensure the efficient transfer of assets post death and has in fact added an entire new class of people who can utilize some strategies (those with net worth between 10 and 21 million dollars). It is important to note that all laws are subject to repeal and adjustment, so keep an eye in the future on how Congress and the Executive branch handle these issues in the next 5-10 years.

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