The 2017 Tax Act, which was signed into law in December, made dramatic changes in the estate and gift tax exemption amounts. This post focuses specifically on what is does to the estate and gift taxes and what that means for you.

Highlights of the Act’s Estate and Gift Tax Changes:


Increased Exemptions with Sunset.


  • For the years 2018 – 2025, the estate tax exemption will equal $11.18 million per person, or $22.36 million for a married couple (indexed for inflation).


  • In 2026, the exemptions revert back to where they were last year, which was $5.6 million per person or $11.2 million per couple (also indexed for inflation).


Stepped-up Basis at Death Preserved.  The 2017 Act continues the rule that says that any assets that are in your estate will receive a new basis for income tax purposes equal to the date of death value. For appreciated assets this means a complete step up in basis at the decedent’s death, eliminating capital gains on assets owned by the decedent.


Portability for Spouses Continued.  The 2017 Act continues portability, by which any unused estate tax exemption remaining at the first spouse’s death can be inherited by the surviving spouse and added to his or her gift and estate tax exemption.  In many cases portability will allow us to simplify your estate planning, eliminating the need to use any of the exemption at the first spouse’s death and instead allow it to roll over to the surviving spouse, to shelter all the couple’s assets at the second death. If that is done, then future appreciation from the date of the first spouse’s death to the second spouse’s death will receive a second step-up basis and avoid capital gains tax on all appreciated assets still owned at that time.


These rules combine to make for some very interesting planning possibilities, depending upon several factors, including the size of your estates, how the estates are divided between husband and wife, if you are married, the extent to which you have appreciated assets, and when you expect to die.  The last factor of course, is the hardest to plan for ?.


As the old saying goes, everyone’s situation is unique, so it is impossible to give specific advice without knowing your particular situation.  Having said that, I can give you some general ideas of how you might want to consider planning under the 2017 Tax Act, depending upon the size of your estates.  Please note that these suggestions do not take into account your unique factors, such as whether you are in a second marriage, have children from prior marriages, whether you intend to leave significant sums to charities, the extent to which you may have retirement assets which will be subject to income tax when they are withdrawn after death, and many other possible factors which will make your situation different. So don’t take anything in this letter as advice for you specifically.


Also note—for simplicity the following examples refer to married persons, but if you are single, just divide the numbers in half and you’ll get an idea of how the Tax Act could apply to you.


  1. If husband and wife’s combined assets are expected to always be less than $11.2 million. If you are in a situation where you can comfortably predict that your and your spouse’s combined assets will remain below $11.2 million for the rest of your lives, then the planning is relatively simple.  In many such cases, the best tax scenario will be to have all assets at the first spouse’s death pass to a marital trust for the benefit of the surviving spouse, giving the surviving spouse access to the funds, and causing those funds to be included in his or her estate at death.  The surviving spouse can inherit the first spouse’s remaining exemption via portability, and thus be able to leave up to $11.2 million free of estate taxes at his or her death.  And, unless a future Congress surprises us by reducing the exemptions below what they were in 2017, it does not matter when he or she dies.

Planning pointer: Unless you have updated your documents recently, they likely do not contain the ideal tax planning you need.  Most importantly, if you find yourself in this category and your documents contain terms such as A/B trusts, credit shelter trusts, bypass trusts or the like, your planning will likely cost you more in taxes under the new tax law, and needs to be updated.

  1. Couple’s assets expected to be somewhere between $11.2 million and $22.4 million before second death. If you can comfortably predict that (1) you both are going to die before 2026, and (2) your combined assets will remain under $22.4 million, then the odds are that you should not be subject to any estate tax.  In that situation, the planning would be the same as it is under paragraph A: all the assets of the first spouse to die should pass in a marital trust for the benefit of the surviving spouse, and thus be included in the surviving spouse’s estate.  The surviving spouse should inherit the first spouse’s estate tax exemption, so that the surviving spouse will have a combined exemption of at least $22.36 million, and when the surviving spouse dies before 2026 with less than that amount in his or her estate, there will be no estate tax, and all assets will receive a step-up in basis at his or her death.


This particular scenario makes a lot of assumptions.  Both spouses must die before 2026, no future Congress will reduce the exemptions, and your combined assets will remain below the exemption of the $22.36 million (indexed for inflation) through the date of the surviving spouse’s death.  If you are in this category, you might want to think about a new late-life career with the Psychic Network, but you should definitely consider planning now to lock in the higher exemptions in case some of your predictions don’t pan out.


Planning pointer: The increased exemptions also apply to gifts through 2025, meaning the you can give away up to the exemption amounts and get those assets out of your estates for all time.  There are gifting strategies available to both married couples and singles that can allow you to make such gifts and yet retain control over, and access to the assets, if needed in the future.  


  1. Combined estates of husband and wife currently exceed $22.36 million and likely always will. If you find yourself in this category, then your planning is relatively straightforward.  The same advanced tax planning strategies that we were using before the Tax Act continue to be available.  These include transferring assets out of your estate using discounting techniques, such as limited partnerships and LLC’s, and trying to reduce what will be in the taxable estate at the second spouse’s death to minimize the estate taxes that will apply at that time.  The complicating factor to such planning (i.e. giving things away either outright or trust now) is that anything given away will not receive the stepped-up basis at the first or the second spouse’s death, because those assets will not be owned by a decedent.  The estate tax rate continues to be a flat 40%, while the top capital gains rate is 23.8%, and that is a trade-off that will require discussion and planning.  One strategy might involve gifting assets to trusts for children that are not likely to be sold for the foreseeable future, so that whatever capital gains tax may apply is pushed many years into the future, and yet estate taxes are avoided for all time.


Planning pointer:  If you find yourself in this category, significant planning is likely necessary to reduce the size of your estates, which will likely continue to grow in the future.  The sooner that planning is initiated, the more you can reduce the ultimate amount of your estates subject to estate tax.

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Everyone’s situation is unique, and this summary is designed to just give you a general idea of the considerations that may be involved in planning under the new Tax Act, and the need to consider and possibly complete such planning before the end of 2025. I encourage you not to wait too long—the enhanced exemptions are temporary and they will go away (just like we all will)! ? If either of those happen, it will be too late to plan.

If you would like to discuss how these ideas might apply to you, feel free to contact The Law Office of Stephen D. Dunegan, P.A. and we will be happy to schedule an appointment.