While we are still waiting for the U.S. Department of Treasury to issue guidance on the new tax laws, here is what we know:
- Estate and Gift Tax Changes
The federal estate, gift and GST tax exemptions have doubled to $11,180,000 per person ($22,360,000 for a married couple). This will sunset on 1/1/2026, reverting to 2017 exemption amounts ($5,490,000/person and $10,980,000/married couples) as indexed for inflation.
This enormous increase provides high net worth individuals with the ability to transfer potentially $22,360,000 estate and gift tax free during their lives or at death. Depending on the individual’s goals, some planning opportunities include Spousal Lifetime Access Trusts, Grantor Retained Annuity Trusts, and Dynasty Trusts. Whatever technique is used, it is important to take advantage of this opportunity before the sunset date.
- Fiduciary Income Tax Changes
The calculation of income tax on capital gains remains the same. Estates and trusts will use $2,600 as the upper limit on the 0% tax rate and $12,700 as the upper limit on the 15% tax rate.
Unfortunately, income tax deductions will not be allowed in the years 2018 through 2025 for miscellaneous itemized deductions which are subject to the 2% floor. We believe that estates and trusts will still be able to deduct expenses that are not subject to the 2% floor under I.R.C. §67(e). Such expenses are those paid or incurred in connection with the administration of the estate/trust that would not have been incurred if the property were not held in the estate/trust. Examples of these permissible above the line deductions include tax preparation fees for estate, GST, inheritance and fiduciary income tax returns; probate fees; legal publications; fiduciary commissions and attorneys fees. However, investment management fees may not be deductible if those fees are of the same type that would be paid by an individual instead of an estate/trust.
- Individual Tax Rates
The Standard Deduction has increased to:
- $24,000 (joint return or a surviving spouse)
- $18,000 (unmarried with at least one qualifying child)
- $12,000 (single)
All Miscellaneous Itemized Deductions (subject to 2% floor) have been suspended including unreimbursed employee expenses, tax preparation fees, expenses to maintain income producing property, and most tax advice expenses. In addition, expenses attributable to the trade or business of being an employee, such as home office expenses, are also suspended.
The Act has also increased the limitation for charitable cash contributions by individual taxpayers to 60% (prior to the Act it was limited to 50%) of the individual's adjusted gross income for taxable years beginning December 31, 2017, and before December 31, 2026.
In summary, the Tax Act has provided individuals with the opportunity to transfer millions of dollars out of their estates, generally tax free. Individuals who don’t fit into this category should still have their estate plans completed and reviewed at least every five years, as there is more to planning than just the avoidance of federal estate tax. Of course, there is always Pennsylvania inheritance taxes to worry about.
If you have questions about the next tax law and how it may affect you, please contact Stephanie A. Henrick at (610) 275-0700 or shenrick@highswartz.com. Or contact anyone of our attorneys in Bucks or Montgomery Counties. Our Wills, Trusts & Estates attorneys provide comprehensive legal services to assist in all of these matters.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.
