On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act (TCJA). The TCJA makes several changes that impact estate planning. These changes impact very few individuals and couples, but they are worth noting.
The main change the TCJA makes is on the tax exemptions. For federal estate, gift and generation-skipping transfer tax, the TCJA effectively doubles the 2017 exemption. The exemption is now $11,200,000 per individual, or $22,400,000 for married couples. These exemptions will be adjusted for inflation using the chained consumer price index. For estates greater than the exemption, the 40% tax remains unchanged. Additionally, the annual gift exclusion amount will rise to $15,000. Thus, for examples, parents may gift each of their children $15,000 and this will not be taxed. Absent any congressional changes, these TCJA changes revert back to 2017 levels on January 1, 2026. Additionally, certain states impose state taxes, so estates greater than the federal exemption may still be subject to state taxes.
These are other considerations for estate planning with the TCJA. One such consideration is the changes the TCJA makes to 529 college savings plans. The TCJA expands the benefits of these plans. The TCJA allows parents to aggregate five years of annual gift exclusions into one year. Thus, for example, in 2018 the exclusion is $15,000. Aggregating five years together means a parent can contribute $75,000 ($15,000 x 5) or $150,000 for married couples without triggering federal tax consequences. The TCJA also expands the tax-free exemptions beyond higher education- the exemptions can be used for elementary and secondary school.