Tax Cut | Estate Planning
Its taken some serious wrangling, but Congress and President Trump have finally moved forward on one of the key Republican promises of 2016: passing a massive tax cut. There have been several iterations of the tax cut plan, some even more generous than others. As of December 22, 2017, President Trump finally signed a final version into law and, since then, tax and legal professionals have been busy trying to make sense of what these changes will mean. Though the tax consequences of the Tax Cut and Jobs Act have gotten the most attention, there are other important estate tax consequences as well, at least for those families with lots of money in the bank. To learn more about how the recent tax cut bill could lead to estate planning changes, keep reading.
Impact of the Recent Tax Cut
The impact of the recent tax cut on estate planning principally involves changes to the death tax, also known as the estate tax. For a number of years this tax has been under attack by Republicans who are opposed to the idea of double taxation (the family was taxed during their life and then the estate is taxed a second time after death). Though there has long been outcry about the estate tax, it has only ever impacted a very small minority of American families. In fact, more than 98 percent of all estates in the U.S. have been exempt from the tax for years.
Analysis of the Tax Bill
Despite the relatively limited impact of the estate tax, Republicans have spent years trying to further narrow its applicability. Starting nearly two decades ago, an individual was eligible to exempt $1 million from the federal estate tax, meaning any amounts greater than $1 million would be subject to the taxation. By 2017 this number had grown substantially to $5.5 million. Married couples are able to double the exemption; meaning $11 million could be tax-free.
When Congress was debating how to handle the tax cut plan, one idea put forward by Republicans in the House of Representatives was to eliminate the estate tax entirely. This would mean any amount of money would be exempt from estate taxes. The plan in the Senate, which ultimately won out, was slightly less generous and settled for doubling the estate tax exemption. The signed version of the law says that an individual is able to exempt $11.2 million and married couples can exempt $22.4 million. That means that only a small sliver of the top 1 percent will ever have to worry about paying estate taxes.
In addition to the dramatic increase in exemption amounts, the tax cut also helps out wealthy families by doubling the lifetime gift tax exemption as well as the generation-skipping exemption. Both will now increase to $11.2 million per individual. This means that wealthy individuals can lower the size of their taxable estate now by giving away money to family members while theyre still alive. Thankfully, there is no requirement that the gifts be made directly to relatives, they can instead be made to irrevocable trusts, generation-skipping trusts (those for grandchildren), or to purchase life insurance policies that are ultimately payable to a trust. By making these gifts now, the eventual size of a persons estate is lowered, making it more likely that estate taxes are avoided down the road.
Minnesota Estate Planning Lawyers
An experienced Minnesota estate-planning lawyer can help walk you through the probate process, answering questions along the way. For more information on estate planning in Minnesota, along with a variety of other topics, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.
Source: Estate & gift tax changes under 2017 tax cut and jobs act, by Paul Premack, at MySanAntonio.com.
