Florida Elder Law & Estate Planning Blog


Tax Reform Bill Presents Challenges For Clients

Estate Tax

Effective January 1, 2018, a comprehensive tax reform bill took effect. It is the most sweeping change to the tax code in 30 years, since the 1986 tax reform legislation under President Reagan.

Will this new law have the same longevity as Reagan’s law? Most experts think not, because unlike the 1986 legislation, the new law lacks bipartisan support. Therefore, any planning done relative to the new law should be approached cautiously. You should not assume the new law is a safe or permanent guideline on which to base your estate planning.

The new estate tax and gift tax exemption is doubled from $5.6 million per individual, to $11.2 million. But don’t be lulled into a sense of false security. While history shows us that no tax law is permanent, this new law presents two specific issues to keep in mind and prepare for:

  • After the congressional election of 2018, and the presidential and congressional elections of 2020, there could be a substantive overhaul of the new law.
  • Even if there is no substantive change as a result of the 2018 and 2020 elections, the new law mandates that in 2026, the estate tax exclusion will revert back to its 2017 level: $5.6 per individual, along with inflationary adjustments.

 

Here are just two examples of what might occur as a result of these issues

  • Someone gives $11.2 million as an exempt gift in 2018 and passes away in 2026, when the 2017 exemption is again in effect. The government may “claw back” the $11.2 million gift, include it in the decedent’s estate, and tax $5.6 million of the previously gifted funds ($11.2 million minus $5.6 million).
  • A married couple believes that is highly unlikely that they will have a combined estate of $11.2 million. They do not  realize that in 2026, the lower estate tax exemption is again in effect. If they do no estate tax planning, they may inadvertently leave their estate vulnerable to estate taxes in the future.

 

What should you do now?

We recommend that you have your estate plan reviewed so that it has all of the flexibility and necessary protections that you and your family need for an uncertain future. Plan defensively and do not be lulled into complacency.

Our attorneys continue to analyze how the new law may affect your legal and financial planning going forward. Be sure to check this blog, our website, like our facebook page, and subscribe to our twitter feed to keep up with developments. If you don’t already receive it, you can also sign up for our monthly e-newsletter.

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