On December 22, 2017, Congress passed a new tax law that includes doubling the estate tax and gift tax basic exclusion amount. According to the IRS, the new tax law increases the basic exclusion amount from $5 million to $10 million. Additionally, the new exclusion amount will be in effect from January 1, 2018, until December 31, 2025, while the annual adjustment for inflation will continue. (As of this writing the IRS has yet to determine the inflation-adjusted exclusion amount for 2018. Presumably, it should be around $11,200,000.00).

So, what does this change mean for the common estate? Well, as defined by The Common Executor, the common estate remains the same. However, depending on where a person lives, affluent estates may qualify as a common estate. Accordingly, while the rules for the estate tax and gift tax remain the same as described in the article The Estate Tax and Gift Tax: The Impact on your Estate, the new tax law has a minimal effect on the common estate.

The Effect of the New Tax Law on Estate Planning

Essentially, the effect of the new tax law on estates allows affluent people to plan for a common estate. Ideally, these people will no longer need a team of trust attorneys to avoid paying a possible estate tax. Nevertheless, the state estate tax slightly complicates the matter in the following ways:

• Most states that have an estate tax kept the exclusion amount the same. Usually the exclusion amount for states is much lower than the federal exclusion amount.

• If an estate has a value above the state exclusion amount, the individual may have to make an unpleasant choice. The choice is between paying a possible state estate tax or planning elaborately to avoid paying the tax. Unfortunately, both choices can be expensive.   

Furthermore, to qualify as a common estate, the estate value needs to be less than the exclusion amount for both state and federal. Unfortunately, for affluent people, not all will benefit equally from the new tax law for estates.

Final Thought Concerning the New Tax Law

The new tax law for estates is temporary and may be more temporary than intended. Since passing the new tax law was strictly partisan, a change in power may repeal these rules. Therefore, while two elections are on the horizon, affluent people may consider sticking to their original estate plans rather than constantly changing them. 

Was this article insightful? Do you agree that the new tax law for estates has little impact? Share your comments of questions in the comment box below. 

Reference

What’s New – Estate and Gift Tax – The IRS describes the new tax law for estates.