By Nathan Vinson, Attorney and Partner
English, Lucas, Priest and Owsley, LLP
We’ve had lots and lots of questions about the new tax law passed by Congress and signed into law by President Donald Trump in late 2017. It is a large, complicated and sweeping bill that the average person may have some trouble deciphering, which is understandable. We wanted to tackle here what we see as one of the major benefits for those planning their estates: doubling the exemption for estate taxes.
If you’re looking to a solid guide to all of the tax law changes, read The Motley Fool’s take on it here.
In 2011, this base was set at $5 million, and it was indexed for inflation, meaning that you could leave up to $5 million (plus the adjustment for inflation) to your heirs and your estate would pay no estate tax. For tax year 2017, that amount was $5.49 million once adjusted for inflation.
For 2018, and through 2025, that amount is doubled to $11.2 million, and it is also adjusted for inflation. For individuals, this means you can plan to leave much more to your heirs without socking them with a large tax bill. If you have significant assets, whether that’s cash, life insurance, stock, land or valuable art, it is time to re-examine your estate planning to be sure you, your heirs and any charities you’d like to support after your death receive as much as you’d like for them to have.
Forbes notes that far fewer estates will be subject to estate taxes. You can read their full story here. Forbes reports:
“Far fewer estates will be subject to the levy — the Joint Committee on Taxation estimates the number of taxable estates would drop from 5,000 under current law to 1,800 under the new law in 2018. By comparison, 52,000 estates paid the tax in 2000 when the exemption was $675,000.”
But what happens in 2025?
The tricky part is that this provision could sunset in 2025, if Congress doesn’t pass another law renewing the estate tax exemption. What your estate planning professional will recommend for you should also factor in your age and health, which should be considerations when making plans.
In 2011, when the base was significantly increased, few thought it would last. Surely Congress wouldn’t let this much tax revenue go! But they did, and now entire estate plans are built around it. This is why we recommend reviewing your estate plans each year, even if you are healthy and plan to live forever, just in case Congress changes its mind.
Estate planning is never “set it and forget it.” It is fair to say you might make most of the major decisions once, such as who your heirs will be, what charities you’d like to benefit, and other similar matters. But you will always want to be cognizant of how laws and rules are changing, and how those might affect your estate.
Options for estates
While charitable remainder trusts and irrevocable life insurance trusts are still going to be viable estate planning tools moving forward, the dramatic exemption increase allows for more “down to earth” estate planning where one doesn’t have to get lost in the forest of tax jargon just to understand his or her estate plan. That is not to say that estate plans will get any easier from a non-tax perspective, however.
Also, note that the annual gift tax exclusion amount per donee increased to $15,000 for 2018. That means the first $15,000 you give to each person as a gift does not need to be reported to the IRS. This increase was not part of the tax bill. It was a scheduled cost of living adjustment stemming from prior tax legislation.
Though we will definitely continue providing tax planning services to our clients, there are many, many more options for you if you need assistance with an estate plan outside of tax planning. You shouldn’t make any moves without talking to a qualified professional. Contact me, attorney Nathan Vinson, at (270) 781-6500 or firstname.lastname@example.org. I will be glad to talk to you.