Tax Cuts and Jobs Act - Trusts and Estates
With the passage of the Tax Cuts and Jobs Act (“Act”), there is much concern, as well as confusion, as to the impact the new legislation has on both businesses and individuals alike. The tax changes contained in the Act are the most sweeping since the Tax Reform Act of 1986. As with any tax change, there will be winners and losers, but all taxpayers should be familiar with how the new legislation could impact their specific situation. Below we address the impact on trusts and estates.
The Reconciliation Bill, effective January 1, 2018, doubles the amount that can be exempted from federal estate tax to around $11 million per taxpayer (depending upon how inflation adjustments are calculated). This provides taxpayers with an excellent opportunity to accomplish significant asset protection and business succession planning until the provision sunsets at the end of 2025.
Opportunities for planning abound- Since the Reconciliation Bill prevents the deduction of state and local income, real estate and sales tax, some taxpayers may wish to consider setting up incomplete non-grantor trusts in order to shift income out of the reach of state tax authorities. The income would be subject to the highest tax rate at the federal level for all income over $12,500, but it could avoid state income taxes entirely.
Taxpayers may want to consider making gifts to parents (or, better yet, to trusts for their parents). With the doubled exemption, this strategy offers a viable opportunity to accomplish an increase in basis for income tax planning purposes. Life insurance planning will continue to be important for taxpayers not only to provide liquidity to their survivors but also as a source for tax free retirement income.
This has been prepared for informational purposes, is general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without first obtaining professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Tax Reform Resource Center:
A collection of insights on the impact of the Tax Cuts and Jobs Act