19 Feb

Tax Reform Act Impacts Your Estate Plan – But not as much as you might think

By Cathleen A. Dettmann

February 19, 2018

Thanks to the recently passed Tax Act, the estate and gift tax exemption has doubled — to approximately $11.2 million per individual and $22.4 million for married couples. What does this mean? This is the amount of money that can be given away during life or transferred at death free of the federal estate and gift tax. Unfortunately, though, death and taxes are not only certain, they are certain to be complicated.

This massive increase is only going to be in place for the next eight years – until 2025. After that, without further congressional action the exemption amounts will be reduced to the 2017 levels, as adjusted for inflation. Still, even if Congress doesn’t act to extend these increased exemption limits after 2025, the vast majority of people will not have their assets subject to federal estate tax when they die. The current 2017 exemption is $5.49 million for individuals and $10.98 million for married couples.

Even before the Tax Act, most people had no need to worry about paying federal estate taxes at death. Now, at least for the next eight years, there’s an extremely small percentage of people who need to lose sleep over this tax. Government estimates state that the number of taxable estates will decrease from about 5,000 per year under current 2017 levels to only about 1,800 estates under the new law.

If you’re one of the fortunate few for whom even the current exemption levels might impact your estate plan, then the next eight years pose a fantastic opportunity for well-planned giving. Because the estate tax exemption includes both transfers at death and gifts made during life, now is a good time to take advantage of the increased ability to make tax-free lifetime gifts. This is particularly true for the gift of assets that might appreciate significantly over time. Once that asset leaves your hands, all of that appreciation will benefit the recipient and will not be includible in your taxable estate at death.

Of course, nothing is ever easy – keep in mind that this new law only relates to federal estate taxes. Some states still impose their own, separate estate tax, and that tax will always bear consideration when creating an estate plan.