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Estate Planning Under Tax Cuts and Jobs Act (the “ACT”) Passed Effective 2018

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The ACT provides for many new income and estate tax features.  The purpose of this brief article is to concentrate on the estate, gift and generation skipping transfer ACT provisions.  The new ACT increases the federal estate and gift tax and generation skipping transfer tax exemption amounts from approximately $5 million to $10 million per individual with additional inflation adjustments as under prior law.  The inflation adjustments would increase the exemption amounts to approximately $11.2 million for an individual or combined $22.4 million for a married couple for 2018.  The increase in the estate and gift tax exemptions is subject to a sunset provision and will expire on December 31, 2025 after which the exemption amounts will revert to the $5 million figure plus the relevant inflation adjustments.

The increase is, obviously, very favorable to our more affluent clients.  Here are the other features that should be important to you:

  1. The step up in new income tax basis at death resulting in the forgiveness of capital gain is still in effect.
  2. Current plans that include one or more formula dispositions may require immediate attention because they are no longer appropriate or otherwise have unintended consequences.
  3. Obviously, clients have to keep in mind the scheduled 2026 reduction as part of the sunset provision in the new ACT.
  4. There may be other financial or family circumstances that need to be reviewed.

We anticipate that there may be more interest now specially by individuals who have already used up their prior exemption amounts in making lifetime gifts in view of the ACT’s increased exemptions amounts while they are available.  This may result in an increased consideration of certain estate level income tax planning including whether any state income tax savings in a state like California can be achieved through the use of certain non-grantor trust structures.  We typically utilize Nevada trusts that are referred to as NINGs for this purpose.

Should any of you desire to explore of any these issues or have a new review of your estate plan, please contact Jeff Matsen at Bohm Wildish & Matsen, LLP to make an appointment.

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