As most are now aware, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. Contrary to earlier versions of the Act, the final legislation does not repeal the federal Estate Tax, Gift Tax or Generation Skipping Transfer (the “GST”) Tax. Instead, the new law provides temporary relief in the form of an increased Estate Tax exemption for US citizens dying before January 1, 2026 ($11,200,000 per individual beginning on January 1, 2018, adjusted for inflation). The Act also increases the Gift and GST Tax exemptions to the same $11,200,000 (adjusted for inflation) until the end of 2025.
In 2026, the federal Gift, GST and Estate Tax exemptions will revert back to the current amounts. However, with proper estate planning, the temporary benefits provided under the Act can be extended far beyond 2026.
Proactive estate planning utilizing the increased Gift and GST Tax exemptions will result in valuable estate tax savings post 2026. Utilizing various trusts and the increased exemptions, wealth can be effectively transferred to future generations with limited concern as to what may lie ahead after the sunset of the Act and without imposing any currently payable Gift, GST and/or Estate taxes (for clients dying before 2026). In addition to protecting wealth from taxes, such trusts provide creditor protection, insulation from divorce claims and the opportunity to control the management and distribution of wealth during your lifetime and thereafter. Furthermore, under the new Act, trusts are treated more favorably and will be able to reap valuable income tax benefits that were previously unavailable.
As a reminder, the Act does not increase or repeal state transfer taxes, including New York and Connecticut estate taxes and the New Jersey inheritance tax (the New Jersey estate tax has been repealed starting January 1, 2018, although some speculate temporarily). These transfer tax liabilities must be considered separately, but use of tax-saving gifting strategies by the establishment of trusts under the increased federal exemptions might increase state transfer tax savings as well.
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Please do not hesitate to contact us with any estate planning questions.
212-682-0020 | PutneyLaw.com.