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The Montana Estate Lawyer

Friday, April 20, 2018

Effects of Tax Cuts and Jobs Act (TCJA) on Estate Planning

The Tax Cuts and Jobs Act (TCJA), which was passed on January 1, 2018, may have an impact on your existing estate plan. The Tax Cuts and Jobs Act is the most significant overhaul of the tax code since 1986. Although it was meant to simplify the tax code, it is very complex and will undoubtedly be subject to ongoing modifications and interpretations. The TCJA affects nearly every aspect of income tax and estate tax law. Accordingly, this affords new tax planning opportunities for people with estates of all sizes. However, since some of the new provisions sunset (expire) at the end of 2025, it is imperative that you explore and incorporate these updates into your estate plan quickly, as it may be a “use it or lose it” scenario.

One of the most well-known changes enacted via the TCJA is the doubling of the estate tax, gift tax, and generation skipping tax exemption to $11,180,000 per person. This is one of the provisions that sunsets in 2025. Once it sunsets, the exemption level will drop back down to about $5,000,000 per person. For individuals with estates likely to exceed $5,000,000, it is imperative that they meet with their estate planning attorney sooner rather than later, because planning techniques may be able to be utilized prior to 2025, which could avoid estate and gift taxes of 40% on assets above $5,000,000 and up to $11,180,000.

One technique available to married couples is the Spousal Lifetime Access Trust (SLAT), which can be used to take advantage of the increased exemption and make sure the couple gets a step-up in basis for income tax purposes at the death of each spouse. For those that have a marital and family trust (or credit shelter/bypass trust) created when a spouse dies in order to do effective estate tax planning when the exemption was lower, one technique to incorporate would be to make sure that the family trust share can take advantage of a step-up in income tax basis at the first death in order to avoid a capital gains trap if assets are later sold. Many of our plans have trust protector language that makes that step-up in income tax basis possible, but we recommend a review for those that do not have that language. It is wise to act now to take advantage of these unique planning techniques, while they are still available.

Even if a person does not have an estate worth $5,000,000, there are planning techniques that can be utilized to help clients save money and protect assets. Everyone needs a properly drafted estate plan, customized to ensure their individual goals are addressed.

Common estate planning goals may include the desire to ensure that assets are left protected to their beneficiaries, that assets stay in the family, that assets are protected from divorce, disability, and Medicaid, and that the costs of the administration of the estate are minimized. Many available traditional but more advanced planning techniques are currently enhanced by the historically low interest rates, which makes the use of installment sales to grantor trust, intra-family loans, and split-interest gifts advantageous options for many clients who are not necessarily affected by the doubling of the estate tax exemption.

Jon


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