Under the Tax Cuts and Jobs Act of December 2017, the implications of federal taxes on estate planning may seem straightforward. The Act appears to favor all individuals under the extremely high-income threshold. However, there are important things to understand about this legislation and how it may affect your future and the lives—and inheritance—of your beneficiaries.
What does this Act mean for estate planning?
This tax reform legislation raised the federal estate tax exemption to the highest it has ever been— $11.18 million per person. Under this Act, only the highest-income bracket will pay federal estate taxes. As a result, most individuals won’t have to worry about estate taxes while this legislation is in effect, unless the state in which they live requires them. Happily, for the Floridian taxpayers, Florida does not charge estate tax.
What’s the catch?
This legislation may seem like great news for those planning what will happen to their estates. However, remember that this is, in fact, about what will happen in the future. Many individuals create estate plans early in life as a precaution. Unfortunately, this advantageous legislation is set to expire in 2025. At that time, the limits will revert to the previous threshold of $6 million—this includes adjustments for inflation—unless Congress chooses to extend the rules or make further changes.
With the impending changes to the estate tax income threshold, it’s important to evaluate your current and potential future holdings. Will a drastic change in estate tax legislation affect you? If so, what might the repercussions be for your beneficiaries? Would the benefit of reducing your estate through sizable gifts or other means during the forgiving period before 2025 outweigh the cost of letting your estate grow and experiencing the penalty of hefty taxes later?
Only you can decide: It’s your money. Getting accurate information is the first step to making the right choice for your situation.