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How does Tax Reform Impact Estate Planning?

February 27, 2018

The recent tax overhaul presents some unique opportunities for estate planning, including a significant increase in federal estate, gift and generation skipping transfer tax exemption amounts. Read on.

From an estate planning perspective, the Tax Cuts and Jobs Act provides clients with certain beneficial (but fleeting) estate planning opportunities. Below are the highlights of the Act that impact your estate plan.

  • Estate Tax. The Act increases the federal estate tax exemption amount for individuals dying after December 31, 2017, and before January 1, 2026, to $10 million, and the maximum estate tax rate for estates with assets exceeding this amount is 40%. The $10 million amount is expected to increase to $11.2 million per person for 2018 due to inflation adjustments ($22.4 million per married couple).
  • Portability of Exclusion This is retained under tax reform. This means that upon death, a married individual can pass any unused estate tax exemption on to his or her surviving spouse.
  • Gift Tax. In addition to the $11.2 million, you may gift up to $15,000 per person per year ($30,000 per person per year for married couples) without having it count against your $11.2 million lifetime gift tax exemption. Anything exceeding the $15,000 will reduce your $11.2M estate tax exemption.
    • What else does not reduce your $11.2 million lifetime gift tax exclusion?
      • Tuition payments made directly to an educational organization on behalf of a person
      • Payments for a person’s medical care made directly to the provider.
      • Gifts made to a non U.S. citizen spouse (limited to $152,000 for 2018- up from $149,000 in 2017)
  • Achieving a Better Life Experience (ABLE) Account. The total annual contribution limit to an ABLE account (tax advantaged savings account for people with disabilities) has increased from $14,000 to $15,000 per tax year.
  • The GST Tax. There is a “generation skipping transfer tax” applied on wealth transfers that skip a generation and exceed the individual’s “GST tax exemption” (under the TCJA- $10 million). An asset transfer from a grandparent to a grandchild, for instance, would be subject to a 40% tax. The Act increases an individual's generation skipping transfer tax exemption for transfers made after December 31, 2017, and before January 1, 2026, to $10 million.
  • 529 Account Fund – The TCJA expanded the use of these tax-advantaged investment accounts originally designed to help families pay for college. Now, up to $10,000 per year per child can be withdrawn tax free from such accounts to pay tuition at elementary or secondary public, private or religious schools.
  • Capital Gains and Qualified Dividends. Capital gains and qualified dividends rates are unchanged by TCJA.
  • Dynasty Trusts. Now may be an ideal time to establish a dynasty trust, given the higher federal gift and GST exemptions. A Dynasty Trust is an irrevocable trust that allows wealth to grow and compound free of federal gift, estate, and GST taxes for multiple generations. The longevity of a dynasty trust varies from state to state.
  • Rhode Island Estate Tax. The Rhode Island estate tax exemption increased from $1,515,156 in 2017 to $1,537,656 in 2018, with a top Rhode Island estate tax rate of 16%.
  • Massachusetts Estate Tax. The Massachusetts Estate tax exemption remains at $1 million with a top Massachusetts estate tax rate of 16%.
  • Florida Estate Tax. As a result of the repeal of the federal state death tax credit in 2004, there is no Florida estate tax.

Want to discuss how the new Act and current state estate tax laws may affect your estate plan? Please contact me or a member of our Private Client Services Team.

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