There are a variety of tax law changes as a result of the “Tax Cuts and Jobs Act” (the “Act”). However, the following is a brief summary of the specific changes that will impact estate planning issues.
Although only approximately 0.2% of the population was subject to the federal estate tax prior to the Act, now the estate tax will apply to even fewer people. If you died in 2017, you could leave up to $5,490,000.00 estate tax free as a single person and $10,980,000.00 as a married couple. The Act changed the amount to $11,200,000.00 for a single person and $22,400,000.00 for a married couple. In addition to amounts that you can leave on death, these figures also apply to gift tax exemptions as well as generation-skipping transfer tax exemptions. The amounts will be adjusted for inflation in 2018 through 2025. However, on January 1, 2026, the amounts are scheduled to revert to the 2017 amounts adjusted for inflation. The top estate tax rate will remain at 40% and the tax rate for generation-skipping transfers will remain at a flat rate of 40%.
No changes were made in the Act to carryover basis or a step up in basis for property conveyed after death. Therefore, if you convey your home to your children during your life, your basis in your home will continue to carry over to your children. Whereas, if you leave your home to your children on your death, the basis in your home will continue to receive a step up in basis to the fair market value of the property on the date of your death and potentially eliminate the capital gains tax.
The annual gift tax exclusion for 2018 is now $15,000.00, up from $14,000.00 in 2017. This means that a single person can give $15,000.00 per calendar year, and a married couple can give $30,000.00 per calendar year, to an unlimited number of people without making a taxable gift. In addition to the annual gift tax exclusion, payments can be made directly to a medical care provider or an educational institution on someone else’s behalf (e.g. college tuition for a grandchild).
In light of these changes, it would be beneficial to review your estate planning documents or consider taking advantage of the opportunity to make large gifts to children, grandchildren or trusts for their benefit.