Matt Abels

While most of the conversation about tax reform has focused on the income tax implications for individuals and businesses, another notable change happened with the estate tax exemption. As part of the Tax Cuts and Jobs Act, the estate tax exemption doubled from $5 million to $10 million for individuals and $10 million to $20 million for married couples with portability. Adjusted for inflation, the exemption for 2018 will be $11.18 million and $22.36 million respectively.

While the exemption changed significantly, the estate tax remains at 40%. Also, portability and the step-up in basis remain unchanged.

One interesting and challenging aspect of the tax reform is that this exemption sunsets in 2026, reverting back to the original $5 and $10 million indexed amounts.

Even though increasing the exemption to over $22 million for a couple eliminates the estate tax for most families, it does not eliminate the need for estate planning. Estate planning might look different than it has in the past, with an increasing focus on income tax planning and maximizing the step-up in basis.

Much like the income tax changes present new and different financial planning opportunities for individuals and businesses, the change in the estate tax exemption will create similar opportunities. This should prompt many to review their current plans to ensure they still accomplish what was intended.

If you are not sure if you need to update your estate plan, or if it’s been a few years since you looked at it, it’s probably a good time to contact your financial advisor for a review.

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