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New Tax Law Implications on Estate and Charitable Planning

There are many changes for 2018. Congress passed a last-minute tax law, which the President signed the last business day before the Holidays.

by Brent F. Dille, Attorney at Law

Last week the Senate passed the new tax law, (which had been called the “Tax Cuts and Jobs Act” and due to Senate parliamentarian objections is now ‘An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”) and then the House of Representatives passed it in its final form. (The House had passed a prior version which had to be revised in the Senate.) The President signed the legislation on the last business day before the Holidays. The changes are generally effective January 1, 2018. The provisions relating to individual taxpayers, including those relating to estate, gift, and generation-skipping taxes all sunset after December 31, 2025, with the law reverting to prior law.

Here are the significant changes of interest gifts and estates:

  • The Estate and gift tax exemption is doubled. The basic exclusion amount increases from $5 million to $10 million, adjusted for inflation after 2011. In 2018, the exclusion will be $11.2 million per person. So, a couple could pass $22.4 million free from tax.
  • The Generation-Skipping Transfer (GST) tax exemption is still tied to the Estate and Gift tax exemption. So, it too doubles from $5 million to $10 million with inflation adjustment after 2011. The GST exemption will be $11.2 million in 2018.
  • The step-up in basis remains unaffected by the new legislation.
  • Unrelated to the new tax law, the present interest annual exclusion changed for the first time in years. This is typically known as the maximum amount you can gift to another person on an annual basis. In 2017, it was $14,000 per person per donee, and in 2018 it will be $15,000 per person per donee. (The last time it changed was at the end of 2012 / beginning of 2013, when it changed from $13,000 to $14,000). What this means is that beginning 2018, husband and wife can combine their gifts and give $30,000 combined to any donee.

As a result of the tax law changes for 2018, most taxpayers who used to itemize may no longer need to itemize deductions because the standard individual deduction has been increased to $12,000; $24,000 for a married couple, filling jointly; and $18,000 if filing as a head of household. This means that very few taxpayers will be able to receive any tax benefit for charitable deductions if the combined total of their state income or sales tax, charitable giving, and mortgage interest deductions is less than $12,000 or $24,000, if married.

This increases the desirability for taxpayers to take advantage of the “charitable IRA rollover” which became permanent a couple years ago. Those over age 70 ½ may give up to $100,000 of their IRA each year directly to a charity. Those who choose to do so do not need to take the amount into income, but also don’t receive a charitable deduction for the gift to charity. However, the charity receives 100% of your distribution, rather than the net after tax amount. A win-win for both parties!

If you have questions about your personal situation or would like additional information, please call Colleen Gillespie at 360-464-2025, or by email at colleen@sawstonwealth.com. Brent F. Dille, Attorney at Law can be reached at DILLE LAW, PLLC at (360) 350-0270 or brent@dillelaw.com.