On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “TCJA”). The TCJA enacts a number of important tax changes, including some significant changes to the federal gift tax and the federal estate tax that take effect in 2018. Specifically, the TCJA doubles the amount of the “applicable exclusion amount” for both gift tax and estate tax purposes (as well as the generation-skipping transfer tax exemption). Under prior law, the applicable exclusion amount in 2018 would have been $5,600,000 per person but it will now be approximately $11,200,000 per person. This increase in the applicable exclusion amount will serve to make the estate tax a “non-issue” for more individuals.
Any individuals who included formula bequests in their wills that were tied to the applicable exclusion amount should review the terms of their wills to make sure the increase in the applicable exclusion amount does not create unintended consequences (such as leaving too much money to trusts for children to the detriment of a surviving spouse). Also, the new applicable exclusion amount may allow spouses to structure their wills differently without estate tax consequences (such as simply leaving all property to a surviving spouse in full ownership rather than a usufruct or trust structure).
For those individuals who continue to have estate tax exposure after the TCJA, those individuals now have additional gift tax exemption and may consider making additional gifts to reduce their estate if they had otherwise used most of their applicable exclusion amount previously. The gift and estate tax changes by the TCJA will expire and revert back to the prior law on January 1, 2026 (unless extended in the future) so taxpayers with taxable estates may want to take advantage of the changes before the provisions expire or are changed by a later law.