CONTACT US

Tax Changes Impacting Trusts and Estates

As a kickoff to our blogging of the “52nd Annual Heckerling Institute on Estate Planning,” which will take place on January 22-26, I’d like to provide an overview of the major changes to the estate, gift and trust landscape made by the Tax Cuts and Jobs Act that was enacted on December 22, 2017.

Trusts and estates, just like individuals, now have a top federal income tax rate of 37% (reduced from 39.6%) and can only deduct $10,000 worth of state and local income and property taxes; they can no longer deduct miscellaneous itemized expenses that exceed 2% of adjusted gross income (AGI). In light of this, consider the following planning strategies:

  • Structure trusts so they are not subject to state income tax.
  • Choose an estate fiscal year to take maximum advantage of the lower top 2018 income tax rate of 37% and the new 20% deduction for qualified business income; or, choose a fiscal year that lengthens the period the estate is subject to the pre-2018 tax regime so that it can take advantage of the more generous deductions available for tax years beginning before 2018.

In addition to the above, both the $5 million gift and estate tax basic exclusion and the $5 million generation-skipping transfer tax exemption have been doubled for gifts made and decedents dying after December 31, 2017, and before January 1, 2026. This means that the 2018 exclusion and exemption will be $10 million per person (as adjusted for inflation) or $20 million per married couple (as adjusted for inflation). With the inflation adjustment, it is likely that the new exclusion will be approximately $11 million per person in 2018.    In light of the above changes, a married couple can give away up to $20 million (as indexed for inflation) during life or at death without paying any federal gift, estate or generation-skipping transfer tax.   However, if an individual resides in a state that imposes a gift or an estate tax and that state’s exclusion is not as high as the federal exclusion, state gift or estate tax will apply to a transfer that is otherwise exempt from federal gift or estate tax. Because the gift and estate tax basic exclusion and generation-skipping transfer tax exemption have been doubled for only the next eight years, individuals have a limited window of opportunity to transfer a significant amount of wealth without triggering any federal transfer taxes.

Stay tuned for upcoming blogs that will provide additional insight on this topic and other relevant issues addressed by the Heckerling speakers. 

Karen L. Goldberg in the Private Wealth Advisory Group leads the trust and estate practice in the New York office. Karen specializes in estate planning for closely held business owners, senior corporate executives and other high net worth individuals.

Contact Karen

* Required