How the New Tax Laws Could Help your Estate Planning Goals

The new tax laws taking effect in 2018 give both individuals and couples even more flexibility to plan for their estates and ensure the largest possible part of their estate goes to beneficiaries on a tax-free basis. While the changes will remain in effect until 2025, families should start formulating estate plans now in order to take the greatest advantage possible of the reforms and craft the best possible plan for the future.


The tax reform bills substantially increases the individual estate and gift tax exemption from $5.6 million to approximately $11.2 million and up to $22.4 million for a married couple. After December 31, 2025, the numbers will revert back to their 2017 numbers adjusted for inflation. However, law makes no changes to the 40 percent tax rate currently imposed on transfers in excess of the exemption amount.


With the new changes, wealthy individuals and couples should consider immediately making large gifts or create trusts to maximize their federal estate and gift tax exemptions. Having the ability for married couples to transfer up to $22.4 million can benefit multiple generations of family members and avoid any future additional wealth transfer taxes. Furthermore, those who have already expended their gift tax exemptions prior to the end of 2017 will now have an additional $11.2 million to work with.


New Yorkers will still have to pay state estate taxes on wealth transfers of more than $5.25 million for deaths occurring in 2018 but can avoid even these by passing along wealth using a lifetime gift. In 2019, the New York estate tax exemption will grow to half of the federal level and allow them to pass along double their current wealth without state taxes, giving families with wealth even more breathing room to pass along their hard earned assets.


To start planning for these changes, individuals should review both their last will and testament and revocable trusts created with consideration to the old tax laws. Many individuals create tax credit shelters and set their wills and trusts with ceilings on funding dependent on the maximum exemption on gift and estate tax rates.


Both single people and married couples should review their estate plans to decide whether or not to fund these shelters with the maximum $11.2 million amount. However, it is important to note that what might work for one family may not be the right fit for another and these decisions should be made on an individual basis.

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