November 14, 2017
On Thursday, November 9, 2017, the Senate Finance Committee released its version of the proposed Tax Cuts and Jobs Act, on the heels of the House’s Tax Cuts and Jobs Act released earlier and discussed here. Although the Senate Bill purports to achieve the same tax reform goals as the House Bill, there are important differences in the two proposals.
As you will recall, the House version of the Bill doubles the unified exclusion amount for Estate, Gift, and GST Taxes from $5.6 Million per person (starting in 2018) to $11.2 Million per person, and phases out the Estate and GST Taxes completely after 2023. The Senate version also doubles the exclusion amount to $11.2 Million, but keeps the Estate and GST Taxes intact. The higher exclusion amount will afford wealthy individuals the opportunity to shield more of their assets from incurring Estate or GST taxes. However, it also means that the need for complex estate planning utilizing discount valuations, grantor trusts, transfers of interests in closely held business entities and other proven strategies will continue to be important and relevant for ultra high net-worth clients.
Some of the remaining differences in the Senate Bill are nuanced, while others could be significant: the Corporate rate is reduced from 35% to 20% like in the House version, but the reduced rate would not go into effect until 2019 under the Senate version; in the Senate version, the rates for pass-through entities would be slightly lower than they are now, but such income could be eligible for a special 17.4% business income deduction; and finally, where the House version cut the number individual income rate brackets from 7 to 4, the Senate version maintains 7 brackets, but skews the rates lower and the income thresholds higher, leading to lower effective rates.
The Tax Foundation has done an excellent job analyzing the details and anticipated effects of both the House version and the Senate version. A summary of the House version can be viewed here, a summary of the Senate version can be viewed here, and some important differences between the two versions can be viewed here. It will be interesting to see where the repeal of the Estate and/or GST Taxes will fall on the spectrum of tax reform priorities in a final version of the law, as it is apparent that the House prioritizes repeal and the Senate does not. We will try to bring you updates as they come in, and in the meantime, if you have any questions regarding your estate plan, concerns you have with estate taxes, or any other related questions, please do not hesitate to contact me at firstname.lastname@example.org or at (772) 234-5500.