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Five Estate and Tax Planning Ideas from the Tax Cuts and Jobs Act

In December 2017 Congress passed the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act made major changes to the tax code for individuals, businesses and estates. We do not want to attempt a comprehensive review of the Tax Cuts and Jobs Act. However, there are a few highlights that you should be aware of:

  1. Review Your Current Will or Revocable Trust. The Tax Cuts and Jobs Act increased the lifetime exemption for estate and gift taxes to $11 million. With this change far fewer families need to worry about paying estate taxes after death. However, most estate planning documents were drafted when estate taxes were a real risk for average families. It is not uncommon to see a Will or Revocable Trust that includes complicated estate tax “formula clauses” to divide an estate into two different trusts after the death of the one spouse. Under the Tax Cuts and Jobs Act these formula clauses may not be necessary. If your current Will or Revocable Trust includes lots of difficult to read language about dividing the estate after the death of the first spouse, then your documents are probably designed for the tax law from 1995, 2000 or 2005. Your estate plan will greatly benefit from a more simple approach in line with the very minimal risk of estate taxes under the Tax Cuts and Jobs Act.


  1. Think About Cost Basis. Now that few families are at risk of paying estate taxes at death, capital gains taxes become the worst tax you might have to pay. Evaluate the tax basis of your assets. If you are depreciating assets or have significant highly appreciated stock or investments, you may want to consider special planning targeted at reinstating your full tax basis and reducing capital gains tax for you in the future.


  1. New Gift Strategies. If your assets are between $5.4 million and $11 million you need to consider gift strategies and estate planning to take advantage of the high lifetime gift and estate tax exemption under the Tax Cuts and Jobs Act. The new, higher exemption has a sunset provision that will make it disappear after 2025. If you do not plan on dying before that time you may want to do something to lock the tax savings in for your family.


  1. Bundle Charitable Contributions. Because the Tax Cuts and Jobs Act reduced the value of charitable deductions on your personal income tax return, consider “bundling” your charitable contributions for a number of years into a single calendar year so that you maximize the value of your charitable deduction when you can take it. You should include your tax preparer in your decision making process for this so that everything is coordinated for your tax return. You should also consult with your intended charities to determine how they approach a move away from regular annual contributions to larger and less frequent gifts.


  1. “Pass-Through” Entities. The Tax Cuts and Jobs Act included provisions to allow “pass-through” business entities like partnerships and limited liability companies to enjoy a major tax benefit that corporations receive. However, these pass-through entities need to navigate through some complicated and difficult tests and rules. The results can be unpredictable. If you own a business that is not a corporation, you should consult with your tax preparer and advisors to determine what steps you need to take with your pass-through entity.

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