How Will the New Federal Estate Tax Exemption Affect Estate Planning?

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How Will the New Federal Estate Tax Exemption Affect Estate Planning?

calculator with tax form 1040 and laptop lying on wooden desk

The Tax Cuts and Jobs Act of 2017 raised the estate tax exemption, among numerous other changes to federal tax laws. While the other changes may affect your annual income tax returns, the changes to the estate tax exemption could drastically alter your long-term estate plan.

This legislation will not affect everyone. The Act doubled the exemption to over $11 million for individuals and over $22 million for married couples. The Act also raised the gift tax and generation skipping transfer tax exemptions to the same amounts. In other words, individuals can make just over $11 million in bequests in their wills, lifetime gifts, and generation-skipping transfers without estate tax being assessed. As long as the total of your lifetime gifts and your bequests after death does not exceed $11 million, estate tax will not be assessed.

For people who are planning their estates now or who have already made an estate plan, the new law triggers an immediate need to update the plan. As a result of the new exemption level, many fewer people’s estates will have to pay estate tax than did in 2017. People who previously would have exceeded the exemption threshold could now make additional lifetime gifts. Alternatively, people who are no longer affected by the estate tax may need to adjust the structure of trusts, such as those set up to hold assets for the surviving spouse upon the first spouse’s death. Many other changes may be needed to take advantage of the higher exemption. Without reviewing your plan, you could miss the opportunity to lower your tax bill now or in the future.

The change only lasts until December 25, 2025, so people who previously would have exceeded the exemption threshold should update their estate plans now to take advantage of the tax savings available until then. While everyone will benefit from the security and peace of mind that a proper estate plan provides, if you have more than $1 million in assets, there is even more incentive for you to consider creating one now while the tax laws are favorable.

Planning your estate? Angela Klenk, Esq. and the team at Beach Cities Estate Law couple personalized attention to your estate plan with big law firm experience for a winning combination to give you peace of mind. To schedule a case evaluation, visit Beach Cities Estate Law online or call at (424) 400-2125.

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