How Does the New Tax Act Affect Your Estate Planning?

Estate Planning and the New Tax Act

Many of my clients have been asking me if they need to re-evaluate their estate plans in response to the changes in the tax law, the “Tax Cuts and Jobs Act of 2017”.

The Tax Act addresses personal, business, and estate tax planning taxes.  Here is some specific information that concerns estates.

The Estate Tax:

The federal estate tax is a 40% tax imposed on an individual’s assets which are transferred upon death.  The United States has had a version of the estate tax since 1916.  This tax applies to the gross estate – ALL of a decedent’s assets, no matter the character or value, passing upon death to beneficiaries, trusts, heirs, and non-charitable entities.  This would even include life insurance proceeds, not something individuals usually think of as part of their estate.

The new Tax Act significantly changes the tax exemption amounts for those who die after December 31, 2017.  The estate tax exemption has increased to an inflation-adjusted amount of $10 million per individual or $20 million for married couples. For tax year 2018, the IRS has calculated this to be $11.18 million and $22.36 million, respectively.  The Tax Act has effectively doubled the amount of assets that an individual can transfer free from federal tax upon death.

Responding to the Tax Act:

Many individuals who have estate plans drafted in prior years (in the year 2001, for example, the exemption amount was only $675,000) have formula clauses in their Wills and Revocable Trusts.  Such formulas were used to control what goes where at the time of death to maximize the exemption amount.  A typical formula says what amount goes to the spouse, and what amount goes to the children or grandchildren.  Upon death, this directive is usually irrevocable.

If you have a formula clause in your documents, it is time for a review to determine if this formula will achieve your goals.  It is quite possible, that given the current tax environment, a formula clause could give your spouse far less than you intend.

Questions? The Law Office of Debra Simms is here to help. Call us today 386.256.4882

This blog post is not case-specific and is provided only for educational purposes and is not intended to provide specific legal advice. Blog topics may or may not be updated and entries may be out-of-date at the time you view them.

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