How the Tax Cuts and Jobs Act May Affect Your Estate Plan
In 2018, the Tax Cuts and Jobs Act (TCJA) was passed by Congress, greatly overhauling the U.S. tax system. If you have not made changes to your estate plan for several years, it may be time to consult with an estate planning lawyer to learn how the new tax scheme affects your plan. These are areas that may be affected by changes in the law:
- Lifetime gifts — The TCJA increased the federal estate tax exemption limit to $11.18 million, or $22.36 million for married couples. You can use the increased exemption amount to make tax-free gifts during your lifetime so that you can shield your wealth from taxes.
- Dynasty trusts — A dynasty trust is a special type of trust that provides tax-free benefits for grandchildren or future generations while avoiding federal estate, gift and generation-skipping taxes. It is important to be able to avoid the generation-skipping tax that imposes a 40 percent tax on transfers to grandchildren and future generations. When done properly, you can transfer up to the exemption limit of a dynasty trust while avoiding gift taxes. Your taxable estate will not be affected by the appreciation of these assets.
- 529 plans — The TCJA permanently expands the benefits of using a 529 college savings plan. These plans provide for tax-free withdrawals for certain educational expenses. However, they also offer additional estate planning benefits. Individuals can combine five years’ worth of annual gift tax exclusions into a single year without triggering a gift tax. Under the TCJA, tax-free distributions can also be used for elementary and secondary school expenses, so they provide an additional opportunity for parents and other relatives to leave an inheritance for a child that will more directly benefit him or her.
- Different income tax brackets — The most comprehensive change to the TCJA was simplifying tax brackets and tax rates. Under the TCJA, individuals and couples may be in different income tax brackets and may have less tax liability. This may make filing much easier by allowing individuals to take the standard deduction rather than itemizing.
Even if the TCJA does not directly affect your estate plan, it is a good idea to have your will, trust or other instruments periodically reviewed to account for changes in your circumstances or the law. The Epstein Law Firm in Chattanooga can help with that review. Call us at 423-265-5100 or contact us online for a free consultation. We serve clients in Tennessee and Georgia.