Article written by:
Scott Eichar
Tax Manager
The Tax Cuts and Jobs Act increased the lifetime exemption amount for estates to $11.18M for 2018 from $5.49M for individuals in 2017 (i.e. married couples now have a combined $22.36M lifetime exemption available). The annual gift exclusion was increased for inflation to $15,000 (up from $14,000). Click on “Full Article” to learn more.
The estate tax (40%) is still in place and this increase in the lifetime exemption is not permanent. This exemption amount is temporary and will “sunset” (expire) on 12/31/25, meaning that beginning 1/1/2026, the exemption amounts will revert back to the 2017 levels (adjusted for inflation).
This significant increase in the exemption for the next eight years presents individuals and families with a unique opportunity for estate planning. Now may be the most opportune time to take advantage of the increased exemption. There are several ways to do this; the most simple of which involves making gifts to either children and/or grandchildren outright or to new or existing trusts. There are also more complex strategies such as sales to grantor trusts.
Now is a great time to review your will and trust documents to ensure they still honor your wishes. Many wills and revocable trusts create trusts that are funded according to formula clauses tied to the exemption amount in effect on your date of death. This means if you die before 2026, these trusts could be funded with significantly larger amounts than you were anticipating when you signed these agreements.
Also, even if you do not have a Federal estate tax liability, there are still many states in which there may be an estate tax liability (i.e. New York, New Jersey, Pennsylvania, Illinois and Kentucky). There are a multitude of non-tax reasons to have an estate plan as well.
If you have questions on your estate plan or want more information on how to take advantage of the new exemption amounts, please contact your GBQ tax advisor.
