In December 2017, President Donald Trump signed a new tax bill into law. Known previously as the Tax Cuts and Jobs Act (TCJA), the reform has far-reaching impacts on many areas of tax and financial planning. One significant area of impact is estate plaꦦnning by raising the exemption on the estate tax. Keep reading to learn more about how this law affects the strategies for estate planning.

Changes Under the Tax Reform

The tax reform legislation raised the estate tax exemption to $11.18 million per person and $22.36 million per married couple for 2018. That was a significant increase over prior limits. The estate tax exemption for an individual is $13.61 million in 2024 and $13.99 million in 2025 (an increase to account for inflation). This eliminates any federal estate taxes on amounts under those limits gifted to 🐈heirs during your lifetime or left to t𝄹hem upon your death.

The new legislation effectively eliminated the federal estate tax for all but the wealthiest individuals. It is worth noting that as with most of the provisions of the act, these rules are set to expire at the end of 2025. At that time, the exemption amounts will revert to previous levels, adjusted for 澳洲幸运5官方开奖结果体彩网:inflation.

Generation-Skipping Tax

The 澳洲幸运5官方开奖结果体彩网:generation-skipping tax rate exemption also increased to the same amount as above for individuals and married couples. This increase also expires at the end of 2025.

The method used to calculate inflation on these exemptions and other related areas has been changed. Instead of the traditional 澳洲幸运5官方开奖结果体彩网:Consumer Price Index (CPI), which was previously used, inflation and exemptions are calculated based on the 澳洲幸运5官方开奖结果体彩网:chain-weighted CPI, a modified measure of inflation that adjusts for "situation bias," or accounts for the shifting purchasing behaviors of consumers. The chain-weighted CPI generally yields a lower rate of inflation.

What This Means for You

The temporary increase in the exemptions for the federal estate tax and the generation-skipping tax means that until the end 🐈of 2025 (unless Congress repeals or extends these rules), many will be able to give away more of their estate to their heirs without paying estate taxes.

The tax law has obvious benefits for 澳洲幸运5官方开奖结果体彩网:beneficiaries, but its introduction doesn't eliminate the nee﷽d for estate and tax planning. Trump's t⛄ax reform did not repeal the estate tax for those states that assess one. If you live in one of the following states, your assets are subject to the appropriate level of any state-imposed estate tax:

• Connecticut
• District of Columbia
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Minnesota
• New York
• Oregon
• Rhode Island
• Vermont
• Washington
  

Individuals facing state-level estate taxes should consider tactics such as a disclaimer and a bypass trust or a 澳洲幸运5官方开奖结果体彩网:qualified terminab✨le interest property (QTI🍸P) trust—both of🌼 which allow a degree of flexibility in the allocation of the assets in your estate, to minimize t𓄧he impact of taxes on their estate.

With the increased exemption limits, lifetime gifts of estate assets can be made without concern of triggering federal gift and estate taxes, except for those with estates over the exemption amounts. Gifting can also be done by shifting assets likely to experience high levels of appreciation. This can shield the appreciation of those assets from future estate taxation in your estate once the exemption limits expire after 2025.

A Strategy to Protect Your Spouse

You may want to consider the spousal lifetime access trust as a way to protect your spouse. This is an irrevocable trust that removes the assets from your estate and transfers them to an irrevocable trust for your spouse's benefit.

The advantage is that those assets are out of your estate, allowing you to take advantage of the increased estate tax exemption before the 2025 deadline, while still retaining a degree of control over those assets via your spouse during their lifetime.

Be warned, though, that SLATs come with downsides. Should you divorce, you have no claim to the assets in the SLAT. It is also critical to ensure that, should you both use a SLAT, the trusts are not identical. This helps to avoid the risk that the trusts will be deemed to be substantially identical, in violation of the reciprocal trust doctrine, which could invalidate the trust.

Accidental Disinheritance

One potential unintended consequence of the higher exem💦ption limits is that some heirs may unintentionally be disinherited.

Many estate plans are set up to use a bypass trust, which🌃 directs a trustee to use any remaining estate tax exemption amount to fund the bypass trust. This would be done 🃏before distributing the remaining assets in the estate to the intended heirs.

The size of the bypass trust in a case like this could cause some heirs to be unin🔯tentionally disinherited. Those with this type of provision should review their estate planning documents.

The Life Insurance Option

Life insurance is ꦫa popular way to help heirs cover any estate taxes that might be due in conjunction with a large estate over the exemption limits. With the increase in the exem🌠ption, the prevalence of these exemptions may wane.

These policies can now serve as a backstop for the estate, allowing grantors to pass assets in a tax-efficient manner and providing liquidity in cases where some of the estate assets are illiquid, such as real estate or an inte🎀rest in a busine🎶ss.

The Bottom Line

Tax reform has 🤪resulted in many changes for taxpayers, beginning with the 2018 tax season. Estate planning is one area that has been impacte🍸d, but like most of the tax reform legislation, the impact is temporary and will largely revert to the prior rules after 2025.

Especial⛄ly for those with larger estates, it is wise to review your current estate planning documents to ensure that they still do what you intended for them to do and to ensure that you are taking full advantage of any opportunities under tax reform.