The Tax Cuts and Jobs Act (TCJA) introduced sweeping changes to many aspects of the Internal Revenue Code (IRC). The Act was passed by the Senate and House of Representative and signed by President Trump on December 22, 2017. While the Act covers a broad range of income, estate, corporate, and other tax related matters, here we will focus on the effects one state and gift tax.
How TCJA Impacts Estate and Gift Tax Exemption?
The estate and gift tax exemption provides additional protection to the estate assets. Prior to the passing of TCJA, an individual could shield $5.49 million from federal estate and gift taxes. The amount for married couples was $10.98 million.
After the passage of the TCJA, the lifetime gift exemption had increased to $11.2 million for an individual and $22.4 million for married couples. The exemption will be put into effect from January 2018. This presents a golden opportunity for you to greatly reduce your taxable estates.
Let’s look at a hypothetical example to understand how you can benefit from the tax exemption introduced by the new Act.
Suppose, you have a total of $30 million that is expected to increase to $40 million in the next nine years, however, if you die in 2026, the estate tax would have amounted to more than $11 million as per the previous law.
With the introduction of the new Act, the estate tax will amount to $7.6 million if you gift $11.2 million to your children today. In addition, the snap-back tax exemption allowed by the Congress will further reduce your taxes to about $3 million in case you pass away in 2026. This means that you will be able to save $8 million in estate taxes according to the new law. This is of course a hypothetical example. The exact savings will depend on your personal circumstances.
How to Make the Best Use of the Opportunity?
You should review your existing estate plan in light of the significant increase in estate and gift tax exemptions. You don’t necessarily need to make a gift to your adult children. You can also create an irrevocable living trust to benefit from the estate and gift tax exemption. Also, you can create a charitable lead trust to make donations to charities and retain income benefits. You should consider getting help of an estate planning attorney to know more about your options.
An experienced estate planning lawyer will help you explore more options in the context of the new exemption. For more information regarding how TCJA will affect your estate plan, you can contact Chicago Estate Lawyer. We can assist you making the right decision that will result in optimum estate tax savings. You can get in touch with us by dialing 312-313-7018.