From an estate planning perspective, Abbott Nicholson offers insights on the new Tax Cuts and Jobs Act

Posted Jan. 29th 2018

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “Act”). The Act makes several changes to many aspects of the Internal Revenue Code, including modification of policies, credits and deductions for both individuals and businesses. This newsletter serves to alert you of the provisions of the Act affecting estate and gift tax planning.

Federal Tax Exemptions
As of January 1, 2018, the federal estate, gift and generation-skipping transfer tax exemptions have increased from $5.6 million to $11.2 million per individual, adjusted for inflation. Likewise, the exemptions increase from $11.2 million to $22.4 million for married couples. The increase is scheduled to be in effect through December 31, 2025, after which the amounts will revert to current levels.

Annual Gift Tax Exclusion
Independent of the Act, the IRS has announced that the annual gift tax exclusion will increase from $14,000 to $15,000 per recipient per calendar year as of January 1, 2018. Charitable Deductions

Under current law, taxpayers who itemize deductions can deduct contributions made to charitable organizations in amounts of up to 50% of their adjusted gross income. The Act benefits taxpayers who make charitable gifts by increasing the limitation amount to 60% of adjusted gross income for cash contributions.

Section 529 Plans
Section 529 Plans are tax-advantaged investments accounts used for saving for higher education costs for a plan beneficiary. Earnings and distributions from such plans are tax-free. Prior to 2018, Section 529 Plans could only be used for qualified higher education expenses. The Act allows distributions to be made on the same basis to elementary and secondary schools, subject to a $10,000 limit per beneficiary per year.

Estate Planning Recommendations
In 2018, estate planning will likely be focused on reviewing Wills and Revocable Trusts in light of the federal exemption amount. Individuals should consult with their estate planning attorney in light of the following:

  • Current estate plans may include formulas for distribution which take into account the federal tax exemption amount. These formulas should be reviewed to determine whether they remain necessary and/or consistent with your objectives.
  • Those with significant assets should consider planning opportunities that utilize the additional gift tax exemption before it reverts to current amounts in 2025, especially those who have already exhausted the prior exemption amount.
  • There may be recommended changes to your estate plan that provide your assets with a new fair market value income tax basis at the death of you or your spouse (a “step-up in basis”). For some estates, it may be beneficial to focus on obtaining a step-up in basis for highly appreciated assets rather than transferring such assets to trusts or other vehicles that shield them from the estate tax.
  • Those who have created an irrevocable life insurance trust for the purpose of funding the estate tax upon their death should consider reviewing their plan documents to determine whether use of a trust best suits their financial needs.