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Monday, February 26, 2018

How Does The New Tax Law Impact My Estate?

When President Trump was running for office, he vowed to get rid of the estate tax. The “Tax Cuts and Jobs Act” he signed into law in December doesn’t manage to do that, but it does make a few changes that will impact large estates.

The new law temporarily doubles the exemption amount for estate, gift, and generation-skipping taxes from $5 million to $10 million. Only about 5,000 estates a year are above the new $10 million limit, so the law does go a decent way towards reducing the estate tax burden. 

This new limit is in effect for tax years 2018 through 2025, but it is not static, it is indexed to inflation, even for 2018. As in the past, couples can plan together and double their exemption amount. 

If no extension of the law is passed, the limit will revert back to $5 million in 2026. If this exemption limit rollercoaster seems familiar, it is probably because it has happened before. The Bush tax cuts gradually increased the exemption limit, and there was talk that estate taxes would be eliminated altogether, but that law expired, and President Obama and Congress struck a deal that set the $5 million exemption limit that was just increased.

As history has shown, there is no way to predict what will happen in 2026, or even before then if Congress votes to make some additional changes. So, it is better to take action now if your estate can benefit from the higher exemption limit. 

For example, you could use up the exemption by gifting into trusts instead of waiting to use it at your death. It is important to note, however, that gifted assets do not get the same step up in basis as assets that are passed at the time of death. The new tax law does not change this. So, be cautious about what assets you gift.

Even if the new law does not impact your estate, you should consider scheduling a check-up with your estate planning attorney if it has been more than three years since the last time you updated your plan, or if you or someone in your family has had a significant life event. Updating your plan every few years will help ensure all of your loved ones are taken care of, and those you no longer wish to benefit from your plan do not.


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| Phone: 803-594-4453
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| Phone: 704-369-9977

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