The Tax Cuts and Jobs Creation Act and Other Estate Planning Considerations

Republicans in Congress have released their version of a tax reform bill: The Tax Cuts and Jobs Act (the “GOP Act”). It could be the most comprehensive tax code update in decades, yet it is subject to revision. Although estate tax issues are very important, the overwhelming majority of Americans are not impacted by them and have other crucial estate planning needs, addressed below.

REPEAL OF ESTATE TAX

The (proposed) GOP Act repeals the estate tax for individuals dying after December 31, 2023 and, until then, doubles the basic exclusion amount from $5 million to $10 million, adjusted for inflation. If the GOP 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 in 2018, and even more thereafter until full repeal because of the annual inflation adjustment.

The drastic increase in exemption amounts means 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.

Under the GOP Act, the gift tax remains in effect for taxable lifetime gifts even after the repeal of the estate tax, but with two important changes. First, it lowers the maximum gift tax rate to 35 percent for gifts made after December 31, 2023. Second, the increase in the basic exclusion amount described above will continue to apply to taxable gifts after 2024.

NO CHANGES TO TREATMENT OF RETIREMENT ACCOUNTS

There has been much contention surrounding proposals to change the current retirement plan structure. Particularly controversial was a proposal to severely limit the “stretch” retirement account rules for non-spouse beneficiaries. Currently, non-spouse beneficiaries are entitled to stretch out the distributions from a 401(k)/IRA over their life expectancy, which is generally preferred to a lump sum distribution because of the tax-deferral benefits. Under the proposal, the deferral would have been limited to a five-year payout for accounts exceeding $450,000, rapidly accelerating the income tax burden.

Another proposal discussed was to cap contributions made to retirement accounts to $2,400 annually, which is a significant drop from the current $18,000. The anticipated result of such a cap would have been a massive shift to Roth accounts, which are funded on a post-tax basis. Currently, however, the GOP Act does not include plans to change anything in the retirement arena.

COMPLEXITY OF TAX LAWS

The complex law-making process, including “sunset” rules and pure politics, can easily result in additional changes that are difficult to keep up with.  These and other issues have a direct impact on business owners, ranchers and farmers, and many other high net worth individuals and families. Seeking guidance from legal and tax advisors specializing in estate planning is a must.

OTHER CONSIDERATIONS IN ESTATE PLANNING

Many other reasons exist for creating or updating an estate plan to meet your and your family’s specific circumstances. With a proper estate plan in place, you can:

  • Designate who will manage your affairs if you become disabled and when you pass away;
  • Plan for Medicaid and its impact on your estate if you must go into a nursing home;
  • Avoid probate, during your lifetime and when you pass away;
  • Protect children from a prior marriage if you pass away first;
  • Protect assets inherited by your heirs from lawsuits, divorces and other claims;
  • Address different needs of different children, including special needs children and grandchildren; and more.

HELP FOR YOU

Working with qualified estate planning professionals, such as the Aspen Legacy Planning, is crucial to understanding how the right plan can protect your estate and loved ones. There are resources available that families can use to deal with these deeply complex issues, such as local workshops by estate planning advisors, available to pre-qualified individuals.  These workshops are informative, and sign-ups are available now. Remember, procrastination is your worst enemy, and this time of year is a perfect time to address that which you have been putting off.

These workshops are informative and sign ups are available now, followed by individualized no-obligation consultations to evaluate your unique estate planning needs and solutions.

FREE Workshop dates: Thursday, December 7th @ 5:30 pm to 7:30 pm; and Tuesday, December 12th @ 5:30 pm to 7:30 pm.

At the Turnac Tower, 909 St. Joseph Street, Suite 202, Rapid City

Seating is limited. To reserve a seat, call (605) 610-4016, click on the e-mail link appearing on this page, or go to our Contact page and submit your reservation in the "Quick Message" section.

Attendees will be able to schedule no-obligation consultations to address personal objectives and planning strategies.

Give yourself the gift of lifetime protection and peace of mind. Happy Holidays!

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