2017 Tax Cuts and Jobs Act – Effect on Estate and Gift Tax

March 2018 | Article

Have you wondered how the changes to the estate and gift tax exemptions under the 2017 Tax Cuts and Jobs Act may affect your estate planning needs?

The following highlights the recent changes and offers a list of questions for consideration when determining the need to update or create a new estate plan. 

Current Exemption

  • $10 million estate, gift and GST exclusions indexed for inflation
  • Estimated to be $11.18 million in 2018
    • (waiting on final determination– the new law changes the way inflation adjustment is calculated)

Current annual exclusion

  • $15,000 per year
    • (waiting on final determination– the new law changes the way inflation adjustment is calculated)

Sunset Provisions

  • Estate, gift and GST exclusions will “sunset” on Jan. 1, 2026. On that date, unless future legislation is enacted, the 2018 exemption of $5.6 million, indexed for inflation, will be restored.

Use of increased exemption prior to Jan. 1, 2026

  • If exemption is used during life, taxpayer uses the bottom threshold first.
  • To take advantage of the increased exemption, use a gift over the sunset amount of $5.6 million.

Will there be clawback?

  • It is currently unknown. Regulations should be issued addressing the issue of clawback.

Should portability still be considered?

  • Yes, if you believe there may be an estate tax liability after the sunset date.

Should I terminate a life insurance policy held in an irrevocable life insurance trust?

  • Will the proceeds be needed upon the sunset date?
  • Will you qualify for insurance upon the sunset?
  • Is it possible to revise the agreement under its terms or by decanting?
  • Are there alternatives within the policy to adjust the death benefit or premiums?

Should I look at drafting new estate planning documents?

  • Are there revisions that should be made to current planning documents to leave options upon the sunset in 2026? 
  • You may want to consider disclaimer trusts or QTIP trusts in planning documents.
  • Would updating planning documents allow a second stepped up tax basis on the second death?

If I am well under the increased exemption, should I take steps to undo prior gift techniques? 

  • Is there a chance of undoing something that will be needed when the exemption sunsets back to $5.6 million?
  • If I believe I will not be over the $5.6 million at the sunset, or will die before the sunset, should I consider steps to receive the increased stepped-up tax basis at death?

Contact your Eide Bailly tax advisor or a member of our wealth transition services team with questions.

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