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Davis Brown Tax Law Blog

Estate Tax Implications of the 2017 Tax Cuts and Jobs Act - May 3, 2018

The Tax Cuts and Jobs Act includes changes that may impact your income-tax liability—the increased standard deduction, decreased corporate income-tax rate, new individual income-tax rates, and grain-glitch issue for farmers, to name a few. The Act also changes the federal estate-tax exemption amount, which may affect how your will or trust should be set up.

The new law more than doubles the federal estate-tax exemption amount for individuals dying in 2018. For those individuals, the first $11.18 million of their estate will pass without any federal estate tax. This exemption amount is doubled for married couples.

The exemption amount will adjust upward for inflation each year until 2025.  At that time, Congress will need to take some type of action, or the amounts will revert to 2017 levels.

Tax Exemption

2017 Levels

2018 Levels

Federal Estate-Tax Exemption

$5,490,000 for Individuals

$10,980,000 for Married Couples

$11,180,000 for Individuals

$22,360,000 for Married Couples

Annual Gift-Tax Exclusion (per donor to an unlimited number of recipients)



How Your Estate Plan May Be Impacted

Many individuals wish to leave their assets to more than one family member upon their passing—especially in second marriages, where stepchildren are involved. To make this happen, married couples often make wills or trusts that create two sub-trusts: one sub-trust that benefits the surviving spouse, to be funded with assets of a value equal to the estate-tax exemption, and a second subtract that benefits others (e.g., children or a charity), to be funded with any assets remaining after the first subtract has been funded.

For some individuals, this type of estate plan worked very until the end of 2017, when the estate-tax exemption was smaller. Now that the exemption amount has more than doubled, many will find that funding the first trust up to the exemption amount might consume the entire estate, leaving no funds for anyone else to inherit.

Example: Spouse 1 (who is married to Spouse 2) owns assets worth $6 million. Spouse 1’s will states that upon Spouse 1’s death, Spouse 2 will receive in trust an amount equal to the then-applicable exemption amount, with all remaining assets passing to the couple’s children.

  • If Spouse 1 died in 2017, Spouse 2 would have received $5.49 million—the 2017 exemption amount—in trust, and the children would have received the remaining $510,000.
  • If Spouse 1 dies in 2018, Spouse 2 will receive the entire $6 million in trust, and nothing will be left for the children to receive.

Talk with your estate-planning attorney about how the new exemption amount may impact your estate. You may need to adjust your will or trust to change how your estate is set up.

Annual Gift-Tax Exclusion

The increased gift-tax exclusion also creates opportunities to transfer wealth to others in small increments during your lifetime. This can lower the value of your estate for federal estate-tax purposes.

Next Steps

Now is a good time to review your estate-planning documents to determine whether the new exemption amount changes how assets should be divided. Working with your investment advisor, accountant, and lawyer can help you establish an estate plan that will have the biggest benefit for your loved ones.

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