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What Does the New Tax Law Mean for Your Estate Plan?

As you are aware, Congress recently passed a new tax bill.  What you might not know, however, is the impact this piece of legislation can have on your estate plan.  This legislation, known as the Tax Cuts and Jobs Act (“the Act”), was passed by Congress on December 20, 2017 and signed into law by President Trump just two days later. The Act contains revisions to both corporate and individual taxation, but our focus is on the changes affecting your individual gift and estate planning.

As it stood in 2017, the federal estate tax provided an individual exemption of $5.49 million.  This meant that any estate valued at less than $5.49 million was not subject to the federal estate tax. For those fortunate enough to exceed this, however, a 40% tax was imposed on any amount over and above the $5.49 million threshold at their death.   Accordingly, with such a high threshold, planning to avoid the federal estate tax has not been a major obstacle for most families and individuals in recent years.  Despite talks of a total repeal, the Act retained the federal estate tax but raised the exemption to $11.2 million per individual for 2018, indexed for inflation each year thereafter, effectively doubling the current threshold and further narrowing the field of those affected by the tax.  Similarly, the Act also doubles the exemption for the federal gift tax and generation skipping transfer (GST) tax to $11.2 million per individual for 2018, indexed for inflation thereafter.

Portability is a concept closely tied to the federal estate tax. Introduced in 2010, portability allows a surviving spouse to utilize the unused federal estate tax exemption of their deceased spouse. Fortunately, portability was also retained under the new tax bill. The provisions of the Act relating to the estate, GST, and gift taxes are set to sunset in eight years, allowing the law to revert back as it was before the new Act, without further action by Congress.  Thus, portability continues to ensure that spouses preserve the higher federal estate tax exemption should these new transfer tax provisions lapse after 2025.

In light of this information, your estate plans require review to ensure that your intentions are being carried out in the most effective way. For example, if your Will includes a marital trust or credit shelter trust, you may want to review the document with your attorney to consider whether such tools are still the best vehicles to accomplish your planning goals.  No matter the size of your estate, Stock and Leader is equipped to resolve all of your estate planning needs.

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