The Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law on December 22, 2017. With it came sweeping changes to many different sections of the tax code. One of significance, of course – since this is an estate planning blog, was the Federal Estate Tax Exemption amounts. For 2017, the exemption amounts were $5.49M for and individual and $10.98M for a married couple. Those amounts, under IRS guidance issued in late 2017 prior to the Act’s passage, were set to increase to $5.6M and $11.2M respectively based on the amounts being tied to inflation. The Act changed those plans a bit.
While the change itself without the Act did not occupy much space, the result was significant. For 2018, the Estate Tax Exemption amounts will double to $11.2M and $22.4M respectively. This means that individuals and couples can pass assets with value of up to those amounts, whichever would apply, during their lifetime via gift or at their death via inheritance, without the beneficiary incurring any tax liability. Every dollar above those amounts would be subject to Estate or Gift Tax, whichever would apply.
This is obviously great news for ultra-high net worth families, but it’s far from a permanent change. Since the Act was passed as a budget reconciliation bill, and since Congress plugged in requirements that the individual tax cuts terminate by 2025, the changes to the Estate Tax Exemption will only last until 2025 at the latest without further action by Congress.
So, while this is a significant win for ultra-high net worth families, unless someone is sure to pass away in the next seven year, we cannot in good conscience change long-term tax avoidance strategies to rely on the new Estate Tax Exemption amounts. Most estate planning attorneys will likely advise their clients to keep current tax avoidance plans in place moving forward.
Estate Tax planning can be very complex and technical and should not be undertaken without the help of an estate planning attorney. Would you like to talk about your options?