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The “Tax Cuts and Jobs Act” that was signed into law in December 2017 was the most significant tax reform legislation in decades. The changes significantly impacted both individuals and businesses in many areas. Once area most affected was estate planning.

Effective estate and trust planning can ensure financial security for loved ones. For businesses, it can maintain a smooth succession of ownership. The estate planning process can be challenging for the average person, without any legal or accounting training, to understand. The best way to make sure your wishes are followed and your belongings or business are passed on to the right people is to hire professional help.

The role of a CPA (Certified Public Accountant) is to help people navigate the complex and shifting tax laws to facilitate the transfer of assets and minimize the tax liability of their beneficiaries. Everyone should have a comprehensive plan as to how to distribute the assets left in one's estate to avoid complications. Having taxes and estate thoroughly and carefully planned will help loved ones avoid dealing with complications during a time of loss.

Estate Planning Changes

The tax reform legislation raised the estate tax exemption to $11.18 million per person, or $23.36 million for a married couple, a significant increase over prior limits. This eliminates any federal estate taxes on amounts under those limits gifted to heirs during your lifetime or left to them upon your death.

The new legislation eliminates the federal estate tax for all but the wealthiest individuals. One caveat is worth noting: as with most of the provisions of the Act, these rules are set to expire at the end of 2025. At that time, the exemption amounts will revert back to previous levels, adjusted for inflation.

The generation-skipping tax (GST) rate exemption also increased to the same amount as above for individuals and married couples. This increase also expires at the end of 2025. Also, the method used to calculate inflation on these exemptions and other related areas has been changed.

The temporary increase in the exemptions for the federal estate tax and the GST means that until the end of 2025 (unless Congress repeals or extends these rules), many will be able to give away more of their estate to their heirs without paying estate taxes. For beneficiaries, the new law has obvious benefits, but its introduction doesn't eliminate the need for estate and tax planning.

With the increased exemption limits, lifetime gifts of estate assets can be made without concern of trigging federal gift and estate taxes, except for those with estates in excess of the exemption amounts. Gifting can also be done with the idea of shifting assets likely to experience high levels of appreciation. This can shield the appreciation of those assets from future estate taxation in your estate once the current exemption limits expire after 2025.

A Strategy to Protect a Spouse

One tactic to consider in some cases is the spousal lifetime access trust (SLAT). The SLAT is an irrevocable trust that removes the assets from an individual’s estate but transfers the assets to an irrevocable trust for the benefit of his or her spouse. The benefit is that those assets are out of the individual’s estate, allowing them to take advantage of the increased estate tax exemption prior to the 2025 deadline, while still retaining a degree of control over those assets via their spouse during their lifetime.

Changes only temporary – act now

Tax reform has resulted in many changes for taxpayers, especially estate planning, but like most of the tax reform legislation, the impact is temporary and will largely revert to the prior rules after 2025.

Those with estates to pass on to the next generation, especially for those with larger estates, should contact an accountant (and attorney) now to review their current estate planning documents to ensure that they still do what they intended for them to do, and to ensure that they are taking full advantage of any opportunities under tax reform.

For more information or to schedule an appointment with one of our CPAs to discuss estate tax planning, contact Byler, Wolfe, Lutsch & Kampfer at 330-332-4646 in Salem or 330-385-2160 in East Liverpool.