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Tax Cuts and Jobs Act of 2017 - and its effect on Estate Planning

  • Estate Tax Exemptions and Estate Tax. Despite much discussion, the Estate Tax is not repealed. However, the Act increased the Exclusion amount for Estate Tax, Gift Tax and Generation-Skipping Tax from $5,490,000 per person in 2017, to $11,200,000 per individual (or, $22,400,000 for a married couple), starting in 2018.
  • Sunset provisions: the increased exemptions are set expire on December 31, 2025, when they are to revert to the current $5 million exemption beginning on January 1, 2026, still indexed for inflation – unless Congress acts to extend them. This presents a great opportunity to make gifts – high net worth individuals may take advantage of the increased exemptions by making gifts up the maximum available exemption amount.
  • The 40% tax rate for Estate/Gift/GST tax remains the same.
  • Portability remains: a surviving spouse may still elect to claim and use a deceased spouse’s unused exclusion amount by filing an Estate Tax Return and electing Portability within nine months of death.
  • The annual Gift Tax Exclusion will still increase to $15,000 in 2018.
  • The Step-up-in-Cost-Basis rules remain unchanged.
  • Charitable Deductions. Gifts to charity remain deductible, and the amount of cash donations to public charities increase from 50% to 60% of adjusted gross income.
  • Alimony Deductions are eliminated by the Act, as well as the corresponding inclusion in income of the alimony-recipient, effective for divorce decrees and separation agreements entered into after December 31, 2018.
  • 529 Plans. Qualified higher education expenses for 529 Plans now will include tuition in connection with enrollment at an elementary or secondary public, private or religious school.