What Does the Tax Cuts and Jobs Act of 2017 Mean for My Estate Plan?

The Tax Cuts and Jobs Act of 2017 (TCJA) is understandably a mixed bag for many people. If you utilize a pass through LLC you may have received a tax cut, but you may have also lost some deductions and credits along the way. TCJA’s effects are likely different for every household based on a host of factors, from income to how you manage your deductions.

Double the Gift and Estate Tax Exemption

Although complete repeal of the gift and estate tax was part of the initial negotiations, it was eventually dropped from the final bill. That being said, the gift and estate tax exemption is being temporarily doubled as a consolation prize. Although temporary, this modification may be significant for some filers.

State and Local Tax (SALT) Deductions

If you were previously exceeding the new $10,000 cap on SALT deductions, you could potentially have some other options. Some filers may own businesses they can shift property taxes to, in which case the cap wouldn’t apply. You may also be eligible for a home office deduction.

Changing Domicile

It’s not uncommon for people in high-tax states to change their domicile to a low-tax state. Although our state taxes in Michigan aren’t as high as those in places like New York or California, this is becoming an increasingly popular option for people who have lost their SALT deduction.

Incomplete Gift Non-Grantor (ING) Trust

An incomplete non-grantor trust, if set up correctly in a low or no income tax state, can help some filers avoid their home state’s higher state tax rate. A non-grantor trust does not pass tax exposure on to the grantor. From an estate planning standpoint, if you put your assets into an ING, it will be viewed as an incomplete gift for gift tax purposes because the grantor is maintaining control of the assets, but a completed transfer in terms of your personal income tax. Because the gift is incomplete, it doesn’t count against your lifetime gift and estate tax credit.

529 College-Savings Plans

Although contributions to 529 College-Savings Plans aren’t considered part of your estate, you still retain control over them, including the power to name beneficiaries. To encourage college savings, the federal government even allows savers to group five years of gift tax exclusion into a single year. So a single person could potentially contribute $75,000 – or a married couple, $150,000 – in a single year and avoid gift or GST taxes as well as using up any of their gift tax exemption.

The new law adds even more flexibility to 529 plans because they can now be used to pay for elementary and secondary school expenses in addition to college.

Learn About Your Options

The Tax Cuts and Jobs Act of 2017 (TCJA) is having some complicated effects on tax and estate planning. That’s why it’s so important to review both with your CPA and your estate planning attorneys. If you have questions about the TCJA and how it may affect your estate plan, call the Law Offices of David L. Carrier at 616-361-8400.

https://www.cpajournal.com/2018/01/30/tax-cuts-jobs-act-might-change-estate-planning/

https://www.cnbc.com/2016/08/02/how-the-wealthy-use-ing-trusts-to-slash-the-state-income-tax-rate-they-pay.html

https://www.kraftcpas.com/articles/will-new-tax-law-impact-estate-plan/