|J. Ronald “Ron” Jackson
Denton Law Firm
555 Jefferson Street
Consideration of Whether to Simplify
Estate and Trust Planning
The Tax Cut and Jobs Act of 2017 (TCJA) doubled the then federal estate and gift tax exclusion amount. For 2019 this federal exclusion amount, adjusted for inflation, is now $11,400,000 and is scheduled to increase to $11,580,000 for 2020. Each individual has this exclusion amount. A married couple thus would have a total federal exclusion amount of $22,800,000 less any amount that had been utilized by prior gifting. This exemption is a unified estate and gift tax exemption. This means that it can be utilized for gifting purposes during one’s life with the remaining unused exclusion amount being available at one’s death. This increased exemption equivalent is scheduled to sunset after 2025 and, unless changed by Congress, it will reduce back to the 2017 level of $5,200,000 as adjusted for inflation. With this increased exemption equivalent, most estates may now be completely exempt from the federal estate tax. This increased exclusion amount may provide an excellent opportunity for gifting without any gift tax being imposed if one were considering making some gifts to individuals exceeding the annual gift tax exclusion amount of $15,000. In addition, for married couples, any exemption not utilized upon the first death can through portability be added to the surviving spouse’s exemption equivalent. In order to gain portability, a federal estate tax return must be filed by the executor upon the first death, even if not otherwise required, to make the election for portability.
The annual calendar year gift tax exclusion for present interest gifts is $15,000 per person. If a parent wished to make a $100,000 outright gift to a child only $85,000 of his/her lifetime exclusion amounts would be used, after accounting for the annual exclusion of $15,000. However, with the new expanded gift and estate tax exclusion amount, one may wish to give larger amounts now in order to utilize the increased exclusion amount in case Congress lowers the exclusion amount after 2025. Gifts made during life enable the donor to see their loved ones benefit from their gifts. In the event the parent did not want to make the gift outright to the child, they could make the gift in trust with distributions to the child in annual increments. Property gifted, decreases the taxable estate and, in addition, the earnings thereon are not included in one’s estate.
In order to save on the federal estate tax, many couples have, through estate planning documents utilized trusts to effectively split their estates in order that a portion was taxed upon the first death and the remaining portion then being taxed upon the second death. This planning enabled the entire estate to pass to the beneficiaries without the imposition of any federal estate tax utilizing each couple exclusion amount. Now with the larger exemption amount, even if it reduces back down, in 2026, to a little over five million, many couples do not need the planning done in years past when the federal exclusion amounts were much lower. It may now be possible to revise one’s planning to eliminate the trusts, or at least give the assets all to the surviving spouse in a trust since the total exemption for both husband and wife will be below the exclusion amounts. This may be especially true where there has been only one marriage and all children are from the same marriage. There could still be good reasons, such as dementia, Medicaid qualification, or in cases where there are children from prior marriages, where a trust for the surviving spouse would be needed.
Now may be a good time for individuals and married couples to consider whether simplification of their estate planning documents is in order. The Denton Law firm has attorneys available to assist as needed. Please feel free to call if you wish to discuss estate planning or changes to your plans.