The New Tax Law and You: Some Essentials

Chaya R. Biskin-Sitko

Every year around this time, our clients are concerned with tax planning strategies for both the prior and upcoming years.  This year, the concern was more palpable than ever due to the “Tax Cuts and Jobs Act,” (“the Act”) signed into law on December 22, 2017.  The last time we saw anything approaching this was in in 2014, when New York’s Governor Andrew Cuomo signed legislation which made broad changes to the New York State estate and gift tax laws, as well as some more technical changes to certain trust income tax rules – and that was minor by comparison.   In this brief update, we will discuss the broad outlines of how the Act impacts tax planning, particularly as it concerns trusts and estates. 

Increased Exemptions

For estates, the Act increases the per person estate, gift and GST tax exemption amounts from the base of $5,000,000.00 (with additional inflation adjustments as under prior law), to $10,000,000.00, again indexed for inflation. Practically speaking, this increase means that an individual can die on January 1, 2018 and leave a federal estate of $11,200,000.00 to anyone, tax-free. Taking this one step further, a married couple can die in 2018 and leave a combined federal estate of $22,400,000.00, to anyone, completely estate tax-free.   For those who die with estates in excess of the applicable exemption amount in 2018, every dollar above the threshold will be subject to a 40% estate tax rate, unchanged from the prior rate.

Absent congressional action, the increased federal exemption is scheduled to expire on December 31, 2025, after which the relevant federal estate, gift and GST tax exemption amounts would revert to the prior $5 million base amounts, plus the relevant inflation adjustments.

Step-ups and Portability  

The Act most notably keeps two key features that often figure prominently in estate planning:

  • Step-up in income tax basis to the date of death value for beneficiaries. This simply means that, rather than owing capital gains on the difference between the original purchase price of an asset and the sale price, estate beneficiaries owe capital gains only on the difference between the value of the asset at the time it went into the estate and the time it was sold.
  • Exemption portability. This is the ability to “port” any unused estate tax exemption from the estate of your late spouse and to add it to your own estate tax exemption.

529 Savings Plans

Tax advantaged 529 savings plans allow parents and grandparents to contribute money for educational expenses to a qualified account, which then grows tax-free.  529 Plans were originally intended to fund post-secondary education; the Act expands them significantly to cover primary and secondary education, whether for public, private or religious schooling.

A Word of Caution

While the Act has long reaching impact on almost every area of the federal tax code and is notably generous to those who have accumulated assets, it has no impact on state gift, estate and transfer taxes.  For example, New York State continues to maintain an estate tax which, for those who die on or after April 1, 2017 and on or before December 31, 2018, $5,250,000.00 is the basic exclusion amount that is exempt from state estate tax. Other states, such as Connecticut, which previously tied their exemption amounts to the federal estate tax, are widely expected to amend their laws.

What to Do

The Act is an unusually complex piece of legislation, and the full extent of its likely impact is still being sorted out.  However, this might be a particularly good time to reevaluate your tax planning strategies with both your accountant and your Holm & O’Hara LLP estate planning attorney.  We stand ready to answer your questions and explore options and opportunities with you.

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Chaya R. Biskin-Sitko


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