We’ve been hearing about the Tax Cuts and Jobs Act of 2017 (TCJA) since last December, when it was signed into law.
But how has the law impacted estate planning?
For one thing, TCJA boosted the estate tax exemption to $11.8 million per person, or $23.36 million for a married couple, which is a generous increase. Therefore, there is no federal tax on amounts under the limits gifted to heirs either during the giver’s lifetime or passed on after their death. Given the size of the exemption, the law pretty much gets rid of estate tax for all but the wealthiest. Be warned though, that the rule expires at the end of 2025 and exemptions revert to previous levels. The generation skipping tax (GST) exemption also increased to the same levels as the estate tax.
The way inflation is calculated on the exemptions has also changed. Formerly, the calculation was based on the Consumer Price Index (CPI). Now, the calculation is based on Chained-CPI, which is modified to adjust for shifting purchasing behaviors by consumers. The rate of inflation is typically lower according to this method.
What this means is that you might want to consider giving some of your money to your heirs before 2025. However, the need for estate and tax planning is hardly negated. Plenty of states will assess tax, including
- District of Columbia
- New York
- Rhode Island
However, there are tactics to help manage state tax obligations, including a disclaimer and bypass trust or a Qualified Terminable Interest Property (QTIP) trust.
For more on gifting assets and how to leverage the benefits of the increased exemption, please see:
How Does the New Tax Law Affect Your Estate Plan? | Investopedia