COVID Resources

The Tax Cuts and Jobs Act—Estate Tax Relief

The Tax Cuts and Jobs Act (TCJA) has made it easier for you to share your wealth.

Prior to the TCJA, the lifetime exemption was $5.49 million. Beginning in 2018, tax reform doubles the exemption to $11.2 million per individual (a total of $22.4 million for a married couple). These limits apply for estate, gift and generation-skipping tax. Also, if marital assets are not evenly distributed, portability lets a couple transfer the unused exclusion to the surviving spouse.

You should know, though, that this is not a permanent fix. After December 31, 2025, the exemption reverts back to pre-Act levels.

The Joint Committee on taxation predicts the number of taxable estates will drop from 5,000 in 2017 to 1,800 in 2018.

What’s happening right now sounds great, but there could be unintended consequences. Many wills and trusts are written to fully fund credit-shelter trusts for the benefit of children. If one spouse dies with $6 million of assets and the will calls for fully funding the credit exemption amount (now $11.2 million), all the assets would be directed to the credit shelter trust.

Annual gifts are still a great estate-planning tool. The annual gift tax exclusion amount for 2018 increased to $15,000 from $14,000 per taxpayer. So, a married couple with two children could give a total of $30,000 to each child utilizing annual gifts. Add the children’s spouses and grandchildren, and this is a great way to spend down potentially taxable estates or simply share your wealth.

So what should you do now? At the very least, revisit your estate plan and documents. They might need an update. And please give us a call if you’d like to discuss this. We’re here to help you.