Berge & Berge, LLP Blog

Tuesday, February 6, 2018

How Might the Tax Cuts and Jobs Act Affect Your Estate Plan?

The Tax Cuts and Jobs Act (TCJA) of 2017 is the first significant tax remodel in over 30 years. It contains numerous changes to how Americans can keep their money when they earn income, operate businesses, make gifts, and pass assets on to their heirs. To maximize your bottom line after taxes, you need to understand how the TCJA affects your estate plan. An experienced estate-tax planning lawyer can help.

The Obvious and the Not-So-Obvious

The TCJA has provisions that affect estate taxes directly, but there are also many new rules that will impact your estate indirectly. Every dollar you do not have to pay in taxes is a dollar you can distribute to your loved ones through your estate plan. Studying the changes that play a role in your income taxes can make a sizeable difference to your tax bill.

Estate Taxes Under the TCJA

The House version of the TCJA got rid of the federal estate tax, but the Senate tucked it back in, with a spoonful of sugar to help the medicine go down. Instead of no estate tax, the Unified Exemption (the combined estate and gift tax exemption) will be $10.6 million per person, and will increase every year with inflation until 2015, when it expires. The 2017 estate, gift, and generation-skipping transfer tax exemption was $5.49 million per person. When one spouse dies without having used the maximum Unified Exemption, the surviving spouse gets to use the unused portion in addition to his or her own exemption.

How this plays out in estate planning: Doubling the exemption will raise the estate tax bar out of reach of the vast majority of families, so they will have no estate tax imposed. The snakebite comes when an estate goes over the $10.6 million threshold, because then a 40 percent tax rate kicks in. For family businesses, paying a 40 percent estate tax bill could decimate the company. Kiplinger recommends that people consider maximizing the temporarily doubled gift tax exemption before it expires, to bring the estate down and ease the estate tax bite.


  • Do not forget about your state’s estate tax rules. Only the federal exemption is doubled, not the state limits
  • Many of the changes that impact business income, like modifications to corporate income taxes, business income taxes, pass-through businesses, net operating loss deductions and fringe benefit deductions, are permanent
  • Most of the personal income tax alterations, such as income tax brackets, Individual Alternative Minimum Tax (AMT), charitable income tax deductions, standard deductions, and personal exemptions, will only last for a few years at most.

What California Is Trying to Do About the Limit on State and Local Tax Deductions

The TCJA caps the deduction for state and local taxes (SALT) at $10,000. Since California has a high tax rate, our lawmakers are trying to find a way to take some of the sting out of this new rule by creating a tax credit for contribution to the California Excellence Fund. Forbes says that it is unclear whether this notion will achieve the desired goal. If successful, the measure could keep more money in your pocket that you can one day distribute through your estate plan.

If you are ready to evaluate your estate plan and formulate the best strategy for your situation, contact the Law Offices of Berge & Berge today.

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