The Tax Cuts and Jobs Act, signed into law by President Donald Trump in December, significantly changed federal estate tax planning statutes.
Namely, the cuts double the current personal exemptions for estate tax beneficiaries.
Previously, the cap for personal exemption from federal estate taxes was $5.5 million dollars. It is now $11.2 million dollars.
Married couples can take advantage of strategic planning to act as their own beneficiaries in a legal technique called “portability.”
The surviving spouse thus can double his or her personal exemption, using their own and that of the deceased spouse, to reach $22.4 million dollars.
Washington, D.C. tax law expert and attorney Mike Collins said the revised tax cuts are an “immense help to taxpayers” and their beneficiaries, depending on their personal worth after death.
The Tax Cuts and Jobs Act “means that if someone dies and you add up the value of everything they own, unless that value exceeds $11.2 million, they’re not going to have to pay any federal estate tax,” he said.
The new tax plan is applicable to the estate tax planning of people who die in the years between 2018 and 2025.
Barring any congressional extensions, the Tax Cuts and Jobs Acts sunsets in 2025. Federal estate tax exemption guidelines then will automatically revert back to 2017 levels.
Taking into account inflation adjustments the reverted personal exemption limit for beneficiaries should be between $5.6 million and $6.5 million dollars.
Any estate tax beneficiaries who inherits more than $11.2 million from a couple will pay a tax rate of about 40% on the extra amount.
Benefiting the rich?
Critics believe that the tax cuts only benefit a rarified class of Americans possessing immense wealth and assets.
There were about 5,000 estates in the U.S. eligible for federal estate tax personal exemptions at the $5.5 million-dollar level, according to Seattle public accountancy company Peterson Sullivan.
The law reduces that amount to about 2,000.
Collins said that those eligible for such cuts should not rely on the personal exemption for beneficiaries to stay high forever and adapt their own estate planning to the law as it benefits them.
“At this point, that’s eight years away. It may seem like the end of time, but really it’s amazing how quickly eight years fly by,” Collins said.