How the New Tax Laws Affect Estate Planning for Couples
Below is a really good article on how the Tax Cuts and Jobs Act (TCAJA) affects estate planning, especially for married couples. This is a good time to take a good look at your estate plan to see how it is going to be affected by these changes. Some of the biggest changes include the increase of the exclusion, which is now $5.6 million per person (or $11.2 million for a couple). This does not mean that you should ignore the step up in basis upon death of one spouse – this is one of the biggest advantages in any law and you should take advantage of it.
See more at: https://theeastmanlawfirm.com/
Married couples may want to review their estate plan under the new tax law
| on June 29, 2018
BY JULIEANNE E. STEINBACHER
The Tax Cuts & Jobs Act (TCAJA) was signed into law Dec. 22, 2017. Most people realize that it’s the most comprehensive tax reform since Tax Reform Act of 1986. However, it’s not just your income tax return that’s affected. Your estate plan may also be greatly impacted.
The exclusion amount for what is taxed by the federal government has been increased. For most, this is good news, as it means far less people will have to pay this tax for gifts during life or at death. In addition, the changes in the tax law remind us that planning to get a step up on basis is also something that can be advantageous at the first spouse’s death. Often after the death of a spouse, the remaining spouse wants to or may need to liquidate items that are subject to capital gains tax such as real estate.
The amount excluded from federal estate tax increased to $11.2 million under the Tax Cuts & Jobs Act. This means that a person can pass that much money during life as a gift or through your estate plan at death without having to pay a large federal gift or estate tax. The exclusion amount reverts back to $5 million in 2025. Most of my clients do not have to worry about federal estates taxes since they will not be dying with or giving away $11.2 million.
Yet, it was not that long ago that the exclusion was $600,000 and many people have estate plans with a complicated procedure upon death due to the lower exclusion amount of $600,000. It made sense at that time to have a more complicated estate plan to avoid a 40 -50-percent tax. Some people divided their heir estates between spouses so some of the assets were in each spouse’s name. Others used trusts upon death that required certain action and curtailed access of the surviving spouse to assets of the other spouse. These were good planning options when the exclusion was lower. Today, these options might need to be reversed because they cost money to administer and often the spouse really wants full access to all the money. Interestingly for some, they should get rid of their complicated A/B trust and just do a simple will.
The new tax law also reminds us that planning to get a step up on basis is also something that can be advantageous at the first spouse’s death. Often after the death of a spouse, the remaining spouse wants to or may need to liquidate items that are subject to capital gains tax such as real estate. I have worked with many surviving spouses who desire to gift or sell a piece of property because they will not or do not want to continue the upkeep of that cabin or vacation property after the death of their spouse. It would be helpful if the estate plan took this into consideration and provided for a way to get a step in basis, thus making it subject to less capital gains tax.
The Tax Cut & Jobs Act was the most comprehensive tax reform since 1986 and it not only affects your income tax, but also impacts your estate plan. You should make an appointment with your attorney or an attorney that is well versed in the new law to see if your estate plan needs updated.