Congress recently enacted what is commonly known as the Tax Cuts and Jobs Act (the “Act”). Among other changes in the Act, Congress provided temporary modifications to estate, gift, and generation-skipping transfer taxes. Specifically, the Act doubled the estate, gift and generation-skipping transfer tax exemptions. Each individual can now pass approximately $11.18 million (indexed for inflation), free of estate, gift and generation-skipping transfer taxes either during their lifetime, upon their death, or in some combination of both. Married couples can pass approximately $22.36 million. These temporary modifications are set to expire unless additional legislation is enacted; therefore, on January 1, 2026 the exemption amounts will return to 2017 levels (approximately $5.49 million per individual/$10.8 million per couple).
Although most Americans will not have taxable estates under the new Act, you may still want to revisit your estate planning. Specifically, historically the transfer tax exemption amounts were much lower, and in order to avoid transfer taxes, married couples would divide assets between two separate subtrusts upon the death of the first spouse. Given the new increase in the estate tax exemption, this type of estate plan may cause all or most of the assets upon the death of the first spouse to be distributed to a bypass/credit shelter trust. While a change to your estate plan is not required, this type of plan does not maximize income tax planning because the bypass/credit shelter trust assets will not be included in the surviving spouse’s estate and will not receive a step-up in basis upon the death of the surviving spouse. Therefore, after reviewing your estate plan, it may be advantageous to make changes and consider both estate and income tax planning.
As always, tax planning is not the only consideration in an estate plan. Other issues such as business succession planning, asset protection, special needs planning, and guardianship of minor children should also be considered in an estate plan. Please contact an attorney at HAO if you would like to discuss your estate planning further.