An Overview of Estate Planning Tax Changes

/ February 23, 2018

As most know, on December 22, 2017, President Trump signed significant tax changes into law. Known as the “Tax Cuts and Jobs Act”, these changes have a significant reach in virtually every facet of the financial world. Here are a few things to keep a watch on with respect to estate planning.

Tax Exemptions: A Sunset Clause

Under the new tax law in 2018, the exemptions for couples and individuals double. Prior to the new legislation, an individual was eligible for $5.6 million in exemption. This has now doubled to approximately $11.2 million for individuals and $22.4 million for couples. These amounts apply to federal estate tax, gift tax, and generation-skipping transfer tax rates.

This increased exemption rate is beneficial to those who make large gifts or who have large estates; they are able to pass on a larger dollar amount to beneficiaries before estate taxes kick in.

Though these new exemption rates are significant, they will not last forever. Barring any changes to the legislation, the exemption amounts will revert to the $5 million exemption (indexed for inflation) at the end of 2025. This sunset clause introduces a sense of uncertainty in estate tax planning.

Annual Gift Exclusion

The annual gift exclusion has also increased from $14,000.00 to $15,000.00. As a reminder, an individual can give $15,000.00 per year, to as many other individuals as he or she would like, without those gifts affecting his or her overall estate or lifetime gift exemption limits.

Minnesota Estate Tax Exemption

Minnesota continues to not have gift tax but does still have an estate tax, which imposes tax on estates at a much lower exemption limit than that of the federal limit. In 2018, the Minnesota estate tax exemption is $2.4 million dollars. This will increase to $2.7M in 2019 and $3.0M in 2020.

How will this affect my estate planning?

If you have an estate plan currently in place, it is best to review your existing documents in light of the new tax law. Examine gift planning strategies, as people who wish to donate more to charitable organizations will be able to do so without encountering estate taxes. However, unintended consequences, such as beneficiaries receiving more or less than intended, may occur. No matter the size of the estate, it is imperative that people review their plans.

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