The recently-passed Tax Cuts and Jobs Act (the Act) provides taxpayers with historic estate planning opportunities. The Act, which became effective on January 1, 2018, grants record high exemption amounts and other advantages for a limited time until December 31, 2025. The Act may also have unintended consequences on existing wills and trusts. Individuals and business owners should therefore be aware of the new tax law and its effects on estate planning. Here are some of the most significant changes brought about by the Act:
Taxpayers were previously allowed an exemption from estate and gift tax of up to $5.6 million per individual and $11.2 million per married couple during life and at death. The Act increases the allowable individual exemption to $11.2 million and the married couple exemption to $22.4 million until 2025. Under the current law, taxpayers may deduct charitable cash contributions of up to 50 percent of their adjusted gross income; the Act increases that amount to 60 percent.
The generation-skipping transfer tax (GSTT) exemption, which applies to transfers to grandchildren and more remote generations, has also doubled to $11.2 million per individual or $22.4 million per married couple. This temporary increase will revert to the current exemption ($5.6 million per individual and $11.2 million per married couple) in 2025.
Seven tax brackets still remain, however the Act changed the top tax rate to 37 percent. This rate will apply to single filers with over $500,000 and married couples with over $600,000. The Act eliminated the personal exemption but increased the standard deduction for single filers to $12,000 and for joint filers to $24,000. Alternative Minimum Tax (AMT) exemption amounts are also temporarily increased to $70,300 for single filers and $109,400 for married filers.
Under the Act, pass-through business owners may deduct 20 percent of qualified business income, however a wage limitation applies – $157,500 for individual filers and $315,000 for joint filers. Individual business owners whose income exceeds $207,500 and joint filers whose income exceeds $415,000 will not be able to claim this limited benefit.
Those who have, or are creating, an estate plan should take advantage of the historic opportunities presented by these changes in tax law. Many may be able to reap the benefits of doubled gift exemption and GSTT exemption amounts only until the Act’s sunset at the end of 2025. Business owners and other individuals may wish to have their estate plans reviewed by an experienced estates attorney who can advise them of any changes to their tax efficiency or distribution of estates.
If you need help modifying an existing estate plan or you are considering drafting a will or trust, contact a knowledgeable and experienced West Chester estate planning lawyers at Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. We represent clients throughout Chester County, Delaware County and Southeastern Pennsylvania from our offices in Media and West Chester. Call 610-565-3700 today to schedule a consultation or contact us online.