The Senate narrowly passed its Tax Reform Bill in the early hours of Saturday morning, with a 51-42 vote in which no Democrats voted in favor of the bill. This marks a significant achievement toward real tax reform, as the House and the Senate now enter conference to merge the House Tax Bill and the Senate Tax Bill into one coherent Tax Reform Package to present to President Trump. I wanted to take the time to highlight the similarities between the two bills with regard to Estate Tax, while recognizing an important difference.

Both versions of the bill significantly increase the exclusion amount for taxpayers; the House version increases the exclusion amount to $10M per person, which will be indexed for inflation going forward, while the Senate version doubles the current exclusion amount from roughly $5.5M to $11M per person. These increases mark a significant opportunity for a married couple with a net worth in the $10M-$20M range, as their previously taxable estate becomes tax-free. In order to take advantage of the increased exclusion amounts, and to protect from future changes in tax law, we will encourage clients whose net worth is in excess of $10M to utilize irrevocable trusts to shelter their increased exclusion amount immediately. Think of these trusts as lifetime credit shelter trusts. Using these trusts will ensure that the clients’ exclusion amount credit is used while it is around (and not decreased or eliminated by subsequent tax law changes), and will pass to their beneficiaries transfer-tax free. Of course, every scenario is different, and special attention should be paid to whether the loss of the step-up in basis at one’s death outweighs utilizing one’s credit while it is statutorily available.

It is important to note, again, that the House version of the bill completely eliminates the Estate Tax after 2023, but both versions retain the Gift Tax. However, clients should remember that the Bush-era tax cuts included the elimination of the Estate Tax starting in 2010, but a subsequent Democrat-controlled Congress re-instituted the Estate Tax starting in 2011. In short, these tax changes need to be taken advantage of sooner rather than later.

If you have any questions regarding tax law changes, your estate plan, or other legal matters, please do not hesitate to contact me at (772) 234-5500 or bhorner@rlloydlaw.com.