In 2017, the Tax Cuts and Jobs Act, a major tax reform bill, was signed into law. The bill made a lot of substantial changes to the federal tax laws of the United States, including in the area of estate and trust taxation. The two biggest changes are: (1) The increase in the estate tax gift exemption to 11.4 million for each individual (married couples can combine their gift exemption) and, (2) an increase in taxes for trusts. Let’s take each in turn.
Many people wonder, is my estate going to pay taxes? The short and simple answer is, if your estate is worth less than 11.4 million dollars, and you have not given away any significant amounts before you die, then no. The new tax law made the estate tax pretty much non-existent for the foreseeable future. According to the
The Tax Policy Center estimated as of 2018 only 1,700 estates would owe taxes following the passage of the tax reform plan, which is less than 0.1%. Thus, unless you have a very large estate, don’t sweat it.
If you are thinking about setting up a trust, or will be managing one someday, then the new tax law impacts you too. Trusts pay taxes just like any other legal entity, and they are subject to their own specific tax rules (including a steep income tax bracket). The tax reform act took away or limited a number of deductions which will likely increase a trust’s tax liability.
As you can see, the tax reform act of 2018 is a bit of a mixed bag for estate planning. However, the biggest effect is that it will likely simplify your estate planning needs due to the increase in the gift exemption.