November 7, 2017
Last week, Republican members of the House of Representatives released their platform for tax reform moving forward. The piece of legislation, called the 2017 Tax Cuts and Jobs Act (“TCJA”), looks to implement significant reform to individual tax rates, corporate tax rates, pass-through entity rates, and deductions. The Act also proposes important changes to the Estate Tax, Generation Skipping Transfer Tax, and the Gift Tax.
Although many hoped for outright repeal of the Estate Tax, the TCJA keeps it around for a few more years. Currently, the Estate and Gift Tax unified credit exclusion is $5.49M per person (or $10.98M per married couple). The TCJA doubles the exclusion amount to $10.98M per person and $21.96M per married couple, and retains the annual inflation adjustment. This is obviously a significantly positive proposal for currently taxable estates with values between $10M and $20M. The additional exclusion amount affords those families flexibility and the opportunity to make gift transfers now to utilize the higher exclusion amount. Going forward, if anything resembling the TCJA becomes law, we will advise clients to utilize transfers or sales to Intentionally Defective Grantor Trusts in order to use the added exclusion amount immediately, so as to protect the transfers from future changes in tax law.
The TCJA calls for the complete repeal of the Estate Tax and Generation Skipping Transfer Tax for deaths occurring in 2024 and on. However, the TCJA also maintains the Gift Tax as a backstop to income shifting during life (we spoke briefly of this here). The TCJA seems to be silent on whether the step-up in bases of a decedent’s assets upon death under I.R.C. Section 1014 is maintained.
These are sweeping changes which, in the event they become law, affords clients a myriad opportunities to further shield their assets from incurring transfer tax. The TCJA, as written, has an extraordinary uphill battle to become law, but it is helpful to know that the Estate Tax and Generation Skipping Transfer Tax is solidly back on the tax reform radar. You can read a great analysis of the TCJA by the Tax Foundation here, and if you dare, you can read the actual House Bill here. We will monitor the progress of tax reform closely. In the meantime, if you have any questions regarding your estate plan and how possible tax reform may change your plan, please do not hesitate to contact me at firstname.lastname@example.org or (772) 234-5500.