When the Tax Cuts and Jobs Act (TCJA) was signed into law in December 2017, it brought numerous, significant changes for individuals and businesses alike.
With Tax Day 2018 behind us, many taxpayers have already felt the impact of this sweeping tax reform. Overall, the changes promise to benefit the average American – some of the provisions of the new law include:
– A lower top tax rate
– Increased standard deductions
– New or increased credits for qualifying children and dependents
– A deduction equal to 20 percent of “qualified” pass-through business income; and, beginning in 2019
– The repeal of the “individual mandate” for minimum essential health coverage and its associated penalty
One important change to the tax code under the TCJA is an increase to the estate and gift tax exemption. Previously, estates and lifetime gifts valued at $5 million (or $5.49 million, indexed for inflation) and higher were subject to federal estate taxes. The new limit, effective January 1, 2018 through December 31, 2025, is $11.2 million ($10 million base) for individuals and $22.4 million ($20 million base) for married couples. Put simply, the vast majority of American estates are now exempt from federal estate taxes.
It’s important to note that if you live in one of the 15 states with an estate or inheritance tax (or both), your estate may still be subject to state taxation if its exemption limits are not tied to the federal limits. Detailed information can be found on the Tax Foundation website.
Why Now is the Right Time to Review Your Estate Plans
Although your current assets may be nowhere near the new federal exemption limit, now is a good time to review your current will, trust, powers of attorney, or other estate planning documents. These new limits are only in place through the 2025 tax year, and will return to the previous $5 million limit afterward. The limit increase could even be reversed sooner, depending on congressional and presidential elections between now and then.
During this temporary increased exemption period, you can clarify your estate plan and ensure that your loved ones are set to reap the maximum benefits – with the least amount of taxes – when you pass away.
Of course, taking advantage of these exemptions requires estate planning documents with the proper legal language and specificity to make sure your wishes are honored. For example, married couples must invoke portability in their estate plan for the surviving spouse to avoid the estate tax on spousal inheritance that was within the exemption limits.
It’s also critical to customize your powers of attorney with specific instructions regarding the distribution and gifting of your financial assets. If your POA is too vague or general, your estate executor and/or financial agent now may not be able to distribute your estate plan to ensure the greatest tax savings to your estate or may have access to a loophole to legally distribute your money as they see fit – and not in ways you intended.
Contact an Experienced Estate Planning Lawyer
Any time there is a change in tax law, life circumstances, or both, you’ll want to consult an experienced estate planning attorney who can help you navigate the complex and often emotional facets of planning for your family’s future. Contact The Law Office of Patricia E. Tichenor, P.L.L.C. to speak with one of our counselors about your estate planning needs today.