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How Might Tax Reform Affect Your Estate Plan? Thumbnail

How Might Tax Reform Affect Your Estate Plan?

By Daniel Weitz, CFP®, CFA

Any time a tax change occurs, it affects more than just your net pay. In the case of the recent Tax Cuts and Jobs Act, Trump’s tax reform bill, we know that it lowers tax rates for individuals and corporations, increases the child tax credit, doubles the standard deduction, and caps or eliminates several deductions. But what does it mean for your estate plan?

As the act and tax bill are still new, it’s difficult to predict with certainty what will happen, but the changes shed light on how estate planning may be affected going forward. Here we will take a look at current law, the notable changes, and what they could mean for you.

Estate Planning Law Prior to Changes

If you’ve done any amount of estate planning, you know that taxes are an extremely important factor to take into consideration when creating a strategy

Estate Tax: The property in your estate is taxed before being passed on to your beneficiaries. There are various tax rates for this, extending up to 40%.

Gift Tax: When you give some of your assets as a gift while you are still alive, that is also subject to tax, up to 40%. However, you don’t have to pay any taxes on the first $15,000 you give each year. That exclusion applies individually to each person you give to.

Generation-Skipping Tax: Property transferred beyond one generation by bequest or gift is also taxed. There is an additional generation-skipping tax with, again, a top rate of 40%.

Basic Exclusion Amount: Any of these three taxes, or any combination of the three, does not apply to the first $5 million of transferred property. This exemption, called the basic exclusion amount, is indexed for inflation, so it is actually $5.6 million for 2018.

These taxes do not apply to transfers between spouses. Also, if you die without using up the entire exclusion amount, your spouse can increase their exclusion amount by whatever you had left of your exclusion. That makes the maximum exclusion possible for 2018 $11.2 million.

Tax Basis: If you give someone an asset while you are still alive, they will take on your tax basis in that property, called a carryover basis. However, if you wait until your death to transfer the asset, their tax basis will be the fair market value of the property at the time of your death, called a step-up in basis.

Estate Planning Law Under the Tax Cuts and Jobs Act

Basic Exclusion Amount: The legislation doubles the basic exclusion amount. Depending on how inflation is calculated, this would amount to around $11 million per individual or $22 million per couple. This basic exclusion amount would apply to tax years after 2017.

Estate, Gift, And Generation-Skipping Transfer Taxes: The bill will double the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017. The basic exclusion amount would increase from $5 million to $10 million and would be indexed for inflation. After 2023, both of these taxes would be repealed. Beneficiaries would still enjoy a step-up in basis for their inherited property.

Gift Tax: The gift tax would remain, but with a top rate of 35%. There would still be an overall lifetime basic exclusion amount as mentioned above, twice the current amount. The annual exclusion would remain the same at $15,000, though it would increase with inflation.

Are the Changes Permanent?

Under current law, only 0.02% of taxpayers pay federal estate taxes, so these changes do not affect a broad section of the population, but rather a few of the wealthiest Americans.1

Because of this, there is a chance that a future administration could repeal it or the taxes could be re-adopted at a later date. This is important to keep in mind when making plans based on these changes in the law.

What This Means for Your Estate Planning

How will these changes affect you? What does this mean for your estate planning?

First of all, the doubling of the exemption amount means that you can increase your giving. It gives you more freedom to be generous and also the opportunity to remove more from your estate in case the taxes are reenacted later on.

This might also be a good opportunity for you to transfer assets from a non-exempt trust to a generation-skipping trust to take advantage of the increased generation-skipping amount. It may also affect how you handle distributions from qualified domestic trusts, as they wouldn’t be taxable after 2024. 

Next Steps to Take

The changes to the tax law will likely affect different kinds of trusts and estate plans in different ways. As always, tax law is complicated and you should always work with an experienced financial professional for your estate planning needs.

Since this could only be a temporary reprieve, it is important to take advantage of the benefits quickly. At Simon Quick Advisors, we coordinate with estate and tax professionals to create and establish a plan that will last through the next generation and beyond. If you have further questions regarding how the legislation may affect you or would like a checkup of your current estate plan, call us at 973-525-1000 or email Info@simonquickadvisors.com. 

About Dan Weitz

Mr. Weitz joined Simon Quick in 2011 and is based in Morristown, NJ. As a Managing Director and Client Advisor, his focus is on providing investment and financial planning advice to high net worth individuals & families. Additionally, he works closely with endowments & foundations and regularly attends investment committee and board meetings. Mr. Weitz completed Fairleigh Dickinson University’s Financial Planning program and passed the CERTIFIED FINANCIAL PLANNER™ exam in 2009. He is also a Chartered Financial Analyst charterholder and member of the CFA Institute. Mr. Weitz holds a B.S. in Psychology from the University of Maryland and an MBA in Finance from Rutgers Business School. To learn more about Dan visit his LinkedIn.


1. http://www.wealthmanagement.com/estate-planning/estate-planning-implications-gop-tax-plan?NL=WM-17a&Issue=WM-17a_20171108_WM-17a_749&sfvc4enews=42&cl=article_1&utm_rid=CPG09000004413403&utm_campaign=11440&utm_medium=email&elq2=4ad333b7e81d4ce995741e119acd3477


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