In the past several years there have been some significant fluctuations in estate planning and estate tax laws. In the beginning of 2018, Congress and the president came to an agreement that included terms that increased the estate and gift tax exemptions. Because of this, it’s very important for you to take a good look at your estate plan in 2019, especially if it has been several years since you updated or revised it.
The new estate tax agreement allows each individual in 2019 to exclude up to at least $11.2 million from estate tax consideration. This means that in 2019, if you are a married couple you can, with proper planning, exclude $22.4 million from estate taxes. This is a very high amount, and one that is significantly higher than it had been in years past.
If you have an estate larger than the $11.2 million exemption limit you can still conceivably avoid estate taxes by taking advantage of individual lifetime gifts. The current gifting rules allow you to give up to $15,000 to each individual per year. If you are married, this effectively allows you to currently give up to $30,000 each year. The new tax law also made changes in the way charitable deductions can be used in planning.
A Caveat: The Return of the “Sunset” Provision
You may recall that in both 2010 and 2012, there was a lot of discussion about the so-called “fiscal cliff”. This was created because the tax cuts that were created under the tax cut bill passed by Congress in 2001 under the Bush administration were set to expire (or sunset) in 2010 and, then again, in 2012, which, unless extended by Congress, would have resulted in higher tax rates. In each year, at the eleventh hour, Congress managed to muster up enough votes, to avoid the “fiscal cliff”. In fact, in 2012, under the second tax bill, the sunset provision was removed and the tax law became permanent.
Then along came the Trump tax bill passed in late 2017 which became effective in 2018. With its passage, the “fiscal cliff” has returned, at least partially. The tax cuts for most businesses and corporations were made permanent. However, most tax cuts for individuals, including the higher estate tax and gift tax exemptions, as well as lower income tax rates, will expire (or sunset) at the end of 2025 unless again extended by a new tax law passed by Congress.
These contingencies always add a level of complexity and uncertainty when one tries to plan for the future. Fortunately, experienced and qualified estate planning attorneys can include provisions into one’s estate plan which can allow for adjustments to the plans provisions in the event of future law changes. Please note that you will not find such provisions in the bargain basement plans found on the internet and other do-it-yourself estate planning books and software.
While revising an old estate plan is always a good idea, especially after significant changes in estate planning and tax laws, you should also consider creating a plan if you have yet to do so. It’s always better to start planning as soon as possible, so if you have yet to create a plan you should contact an experienced and qualified estate planning attorney today.