Estate Tax and Generation Skipping Taxes Repealed
On November 2, 2017, Republicans in the House of Representatives released their version of a tax reform bill: The Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act is not yet law and is only the beginning of what is sure to become a legislative battle.
The Tax Cuts and Jobs Act is extensive and requires scrutiny to thoroughly understand its rules and regulations and their impact, as well as their correlation with the other provisions of the Internal Revenue Code (“Code”). This post briefly focuses on the repeal of the estate tax and generation-skipping transfer (“GST”) taxes.
The Tax Cuts and Jobs Act repeals both the estate and GST taxes for individuals dying and generation-skipping transfers occurring after December 31, 2023, six years from now. In the interim—between January 1, 2018, and full repeal—the GOP Act doubles the basic exclusion amount from $5 million to $10 million (adjusted for inflation after 2010). If the Tax Cuts and Jobs Act becomes law, an individual could transfer $11.2 million (up from the $5.6 million scheduled for 2018 under current law) of assets free from estate tax and generation skipping tax in 2018, and even more thereafter until full repeal because of the annual inflation adjustment.
The drastic increase in exemption amounts would mean that very few people would have estate tax concerns after 2017. Currently, only 0.2% of estates are taxable. With the exclusion amount doubled, the number of taxable estates will be drastically reduced even further, effectively repealing the estate and GST taxes for practically all citizens as of January 1, 2018.
If enacted, many estate planning tax driven strategies, particularly those including trusts utilizing revocable trusts, AB or marital/credit shelter formulas and discount-driven planning tools like family limited partnerships or family LLCs, will need to be revisited.
The Tax Cuts and Jobs Act is currently being met with much of criticism: That it disproportionately favors wealthy citizens, in spite of its being touted as middle-class tax relief. We will watch to see how this Act morphs in the weeks to come. Please contact our Chicago estate planning attorneys to see how this proposed new law will impact your current estate plans.