Under the recently passed Tax Cuts and Jobs Act (“TCJA”) various estate and trust provisions were affected. These changes are generally effective for tax years 2018 through 2025.
The following are some of the highlights and updates of the new provisions:
2018 RATES & EXEMPTIONS:
Estate and Trust income tax rates begin at 10% with the maximum rate now at 37% for taxable income in excess of $12,500.
Estate and Trust federal estate tax rates begin at 18% and increase to 40% on taxable estates of $1 million and up.
In 2018, the annual gift tax exclusion amount is $15,000 per person, per calendar year, increased previously from $14,000.
Beginning January 1, 2018 through Jan. 1, 2026, the lifetime gift and estate exclusion amount was increased to $10 million, indexed for inflation. For the 2018 tax year, the exclusion amount is $11,180,000 per person, $22,360,000 for married couples.
Under TCJA, miscellaneous itemized deductions have been suspended, however, the IRS issued a notice clarifying that estates and nongrantor trusts may continue to deduct expenses incurred in the administration of an estate or a trust as well as deductions allowable under 651 and 661 regarding distribution deductions.
The deduction under Secs. 164(a)(1)—(3) for state and local, personal property, and foreign taxes is limited to $10,000, and foreign real property taxes may not be deducted unless paid or accrued in carrying on a trade or business or for the production of income.
Trusts and estates are eligible for the 20% deduction for qualified business income under new Sec. 199A subject to apportioning, adjustments and limitations of W-2 wages and unadjusted basis of qualified property.
The TCJA also addresses the possible “clawback” issue in case a taxpayer uses up his/her applicable exclusion amount during their lifetime and the current law is not extended or made permanent and the exclusion amount is reduced. The TCJA does not resolve the “clawback” issue, but newly added Sec. 2001(g)(2) directs Treasury to issue regulations to address any difference between the applicable exclusion amount in effect at the time of the decedent’s death and with respect to any gifts made by the decedent.
The TCJA continues to allow “portability” of a deceased spousal unused exclusion amount and does not change the basis step-up rules in Sec. 1014.
Although the federal estate inheritance tax and income tax laws continue to change and evolve, the need to put into place and finalize your estate plan has not.
- It remains important to determine who will play a role in your health and financial affairs if you are incapable of making those decisions yourself.
- Without specific written direction through your estate plan, the Indiana Code will determine who will receive your assets and the general timing of the distribution of your assets.
- Developing Living Wills, Funeral Planning Declarations and POST (Indiana’s Physician Orders for Scope of Treatment) will provide clarity and direction for your desired end-of-life care and treatment.
- If your directives are not committed to writing and memorialized, these decisions will likely be determined by the local Court system.
We understand that creating an estate plan may seem overwhelming. Please call 317-636-5561 or send us an email to schedule an appointment and for a copy of our Estate Planning Questionnaire.