The Tax Cuts and Jobs Act (TCJA) involved changes that taxpayers should consider when making or reviewing their estate plans. And what better time to do so than 2019 year-end planning and 2019 tax filing.

What to consider

The TCJA doubled the federal estate and gift tax exemption to $11,400,000 in 2019. However, this doubling only applies through the end of 2025. The doubling and its temporary nature both provide a motivation to draft documents that refer to general terms-like, "the federal estate tax exemption in effect at the time of death,” as opposed to specific dollar amounts. You’ll want to consider the possibility that a reference to the exemption amount in an estate planning document drafted before the enactment of the TCJA-doubled exemption could create an undesirable result.

Also, if you live in a state that has an estate tax, don't assume that your state tax exemption has doubled. In New York State, for example, the 2019 estate tax exemption is only $5,740,000. Therefore, the wording included in the estate plan documents could result in adverse results if you have a New York State estate.

Case study

Let’s take a look at an example:

Mary’s will was drafted before the enactment of the TCJA and states that:

  • A trust will receive the "unused portion of the federal estate tax exemption
  • The beneficiaries of that trust are the decedent's children and not her spouse
  • The spouse receives the residual of the estate.

It may not be the wish of Mary to fund that trust with the new $11,400,000 exemption. If, for example, the estate is only worth $13 million, the residual passing to the spouse will be less (only $1,600,000), rather than a much larger amount that would have been the residual under pre-TCJA law.

These are just a few of the considerations to keep in mind when reviewing estate plans. If you have concerns or questions about the details of your plan and how it may be affected by the new tax law, please reach out to our experts within The Bonadio Group Estate & Trust Team today.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.


Recent Articles

View All Articles