Happy New Year

Tuesday, January 2, 2018

2018 heralds perhaps the most dramatic change in the federal estate tax in memory. The tax legislation (effective January 1, 2018) immediately doubles the federal estate, gift and generation skipping tax exemption to almost $11.2 million per decedent. The exemption will continue to be indexed annually, and although the actual amount of the adjusted exemptions for 2018 has not yet been announced officially, we believe the calculation will yield an exemption of $11.180 million. Thus couples will be able to pass on over $22 million free of estate and gift tax. These changes are currently due to “sunset” or revert back to pre-2018 levels in 2026 unless Congress takes additional action to make them permanent. We will need to monitor the situation; it would be rare for exemptions such as these to be rolled back but much about the new tax law is unprecedented. The possibility of sunset does introduce an element of uncertainty and will require much thought and flexibility in new estate plans.

The federal concept of portability remains unchanged, as do the unlimited marital and charitable deductions. There are changes in the income tax for trusts and estates with modest drops in the applicable rates but the elimination of some deductions, much like what has been widely publicized concerning changes in the individual income tax deductions. The annual exclusion for gifts will almost certainly increase to $15,000 per donee for 2018.

These changes are sweeping and we advise all individuals who have estate plans that contain tax planning to revisit those plans. Many plans can be simplified, and most should be reviewed as the flow of assets may not be what clients would want for their families given the significantly higher exemptions. Further, some cases with old formulas do require urgent attention as certain older documents (which have been out of date for some time) will actually yield a potentially unnecessary payment of estate tax under certain fact patterns. Please call us to schedule an appointment to review your estate planning documents. We will need an updated asset summary if our information is out of date.