The Tax Cut and Jobs Act (TCJA) has brought about the largest change to the U.S. tax code in
over 30 years. One of the areas of the code that has been significantly impacted by these sweeping changes deals with estates.
The TCJA, which became effective January 1, 2018, reduces the tax burden on estates. Fewer estates are subject to the 40% transfer tax, and larger estates will owe less in taxes under the new provisions.
Pre TCJA
Prior to the TCJA, the first $5mm of transferred property ($5.6mm when adjusted for inflation) was exempt from estate and gift tax. For married couples the exempted transfer amount was $10mm ($11.2mm adjusted for inflation.)
Under the old law, a deceased spouse’s unused exclusion amount could be extended to the surviving spouse. This is referred to as “portability”, as the exclusion amount could be ported from the deceased spouse to the surviving spouse.
Post TCJA
The TCJA doubles the effective exclusion amount that can be excluded from the transfer tax, for years 2018 through 2025. The new exempted amount is $10mm for individuals ($11.2 adjusted for inflation); and for married couples, the excluded amount was expanded to $20mm ($22.4 adjusted for inflation.)
The TCJA maintains portability, so the deceased spouse’s unused exclusion can be transferred to the surviving spouse.
Generation Skipping Tax (GST)
The Generation Skipping Tax (“GST”), is a tax that was implemented to prevent avoidance of estate and gift taxes by skipping transfers to successive generations. While the TCJA does not address GST, the calculation is based on the basic exclusion amount. Ostensibly, this increase in the base exclusion tax should have a favorable impact on the tax burden created via the GST.
This change may have a significant impact on estate and tax planning and may be cause (reason?) to revisit how wills and trusts are constituted.
For additional information on changes to Estate and Gift taxes, please contact your Zinner Tax Advisor.
