Seven Things Estate Planning Clients Should Know About the New Tax Law

The new “Tax Cuts and Jobs Act” was signed into law on December 20, 2017, and became effective January 1, 2018. Although the new law includes only a few changes to the estate, gift, and generation-skipping transfer (GST) tax laws, those changes could have a significant impact on the way existing plans are administered and may change how estate plans are structured going forward. The seven things we think all estate planning clients should know about the new law are as follows:

1. The gift, estate, and GST tax exemptions have effectively been doubled, meaning an individual can now give away a total of $11.2 million during life and at death combined before being subject to gift, estate or GST tax. For a married couple this number is $22.4 million.

1. There is no repeal of the estate tax or “death tax.”

1. The new tax law will sunset on December 31, 2025, and the gift, estate, and GST tax exemption amounts will revert back to $5.6 million per individual ($11.2 million per married couple).

1. For many clients, the new tax law will allow them to simplify their estate plan. Much of the tax planning done previously to avoid an estate tax may now be unnecessary. Clients with a combined net worth of under $11.2 million may want to consider whether their estate plan could be streamlined.

1. Some existing estate plans may no longer operate as intended, especially if multiple trusts are established at death based on formula clauses involving the estate tax exemption amount. In particular, clients who are married with children from a prior relationship ought to review their plan to ensure that everyone is treated fairly upon their death.

1. For clients who have used up their gift tax exemption and are still subject to the estate tax, now is the ideal time to consider making additional gifts.

1. Given that the exemption amounts may not remain at the new levels beyond the next eight years, the key to successful estate planning is flexibility. All clients should explore with their estate planner how their estate plan might function under various tax scenarios and whether their estate plan is flexible enough to withstand such changes.

If you have any questions regarding the new law or would like to review your plan, please call Katie Muldoon at (414) 277-5875/kathryn.muldoon@quarles.com, or your Quarles & Brady LLP estate planner.