We continue to digest and act on the changes to federal tax law that were passed late last year. In a sense, the changes to the federal gift and estate tax just continue a trend of increasing exemptions that started 20 years ago. In 1997, an individual had a federal gift and estate tax exemption of $600,000 and a married couple, with proper planning, had a combined exemption of $1.2 million. Today, those amounts are $11.18 million and $22.36 million, respectively, increasing with inflation through 2025, and then, under current law, cut in half in 2026. In addition, many states (though certainly not all) have reduced or eliminated their state estate tax.
State estate tax considerations can impact the amount and timing of gifts. The current status of state estate taxes in our footprint states was summarized in our March 2018 Update. See also the accompanying article, "Connecticut Estate Tax Interim Update." |
While every situation is different, some general observations may help illustrate the impact of these changes on many of our clients.
We can start with three general groups of people:
People in the first group may find that they are no longer concerned with the federal estate tax and that their primary concern is saving income taxes. If they live in states like Florida or New Jersey with no state estate tax or in states like New York and Connecticut that are in the process of increasing their exemptions, they may no longer have to worry about state estate tax either. Further, those who have been diligent in their estate planning over the years may find they have estate planning vehicles that are no longer necessary in light of the increased federal gift and estate tax exemptions. People in this group may want to explore the following opportunities:
People in the second group may be dealing with the most estate tax uncertainty. Under current law, they would face a federal estate tax again when the exemption is cut in half in 2026. If the current exemption is made permanent (or if death occurs before 2026), there may be no need for further planning for federal estate tax. While the temptation may be to wait, the increased exemption will be lost if not used before it disappears. Decisions regarding making gifts and funding trusts may be difficult, and there may be no perfect plan in light of the uncertainty.
People in this group may wish to consider:
People in the third group (individuals with assets in excess of $11 million and couples with more than $22 million) may be more comfortable making large gifts and should certainly consider using the full gift and estate tax exemption. They may wish to consider:
Of course, the above suggestions are just a starting point. Please contact your Day Pitney estate planning attorney to discuss the opportunities that would make sense for you.
Day Pitney Estate Planning Update
Day Pitney Estate Planning Update
Day Pitney Estate Planning Update
Day Pitney Estate Planning Update
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