Tax Reform Impacts Estate Plans and Planning

Most commentary on the federal Tax Cuts and Jobs Act features lower income tax rates, doubling of the standard deduction, and limitations on deductions, as for payments of state and local taxes.

The same Act offers opportunities to higher net worth clients. It doubled the federal gift, estate and generation-skipping transfer exclusions to $11,180,000 per client, or $22,360,000 for a married couple. Each increase sunsets in 2026.

Tax reform left alone the step-up in income tax basis at death and valuation discounts for interests in closely-held businesses. GRATS (grantor retained annuity trusts), IDGTs (intentionally defective grantor trusts), and planning that splits benefits between individuals and charitable organizations remain viable and will quickly regain potency if the exclusions from transfer taxes drop in 2026 or sooner, by repeal.

Reform offers opportunities to many clients to simplify their estate plans and, in the case of married couples, inexpensively regain some creditor protection by titling assets by the entirety inside or outside of a trust they establish together.

Estate plans that measure what beneficiaries receive by reference to exclusions from federal estate or generation-skipping transfer tax, “by-pass trusts” or the marital deduction should be reviewed and revised promptly in response to the new law.

The annual exclusion for gifts in 2018 is $15,000 per donor, per recipient.

For more information regarding this client alert, please contact C. Thomas Work at 610.478.2084, Jay R. Wagner at 610.478.2109 or the Stevens & Lee attorney with whom you normally consult.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.