The Tax Cuts and Jobs Act of 2018 became law on December 22, 2017, and with it, tax professionals across the country cancelled their holiday plans to make sense of the sweeping changes to the tax code. The changes to the estate tax provisions are not so hard to understand, and they probably won’t affect you. Why not? Here’s a little perspective on just how few people pay federal estate tax:
According to the Tax Policy Center (a non-partisan joint venture between the Urban Institute and Brookings Institution), in 2017 there will be only about 11,300 estate tax returns filed, of which 5,500 will be taxable. “To put the number of estate tax returns filed in perspective, the Population Division of the Bureau of the Census projects that 2.7 million people will die in 2017. Thus, an estate tax return will be filed for only 1 in 237 decedents, and only 1 in 487 will pay any estate tax.” This means that approximately 0.2% of the total U.S. population pays any federal estate tax.
The new tax law increases the exemption amount from $5.49 million dollars per person to $11.2 million dollars per person. The law keeps the so-called “portability” provision, which means that a married couple can combine and share their exemptions for a combined exclusion of $22.4 million dollars. The exemption amount is tied to inflation, so will increase every year.
So what does this mean for the 99.8% of the population that wasn’t paying federal estate tax under the old law? If you weren’t paying it before, you’re definitely not paying it now. And if you were paying it before, or were on the cusp of having to pay, the substantial increase may mean that you are off the hook.
But don’t be too complacent: the estate tax provision of the federal law sunsets in 2025. Also, if you live in New Jersey or Pennsylvania, your estate may still be subject to inheritance tax, depending on who you’ve named as beneficiaries. If your existing Will is more than 10 years old, your Will may contain provisions that are tied to the old federal and state estate tax laws, which may cause issues if it was probated today.
It’s good practice to have a professional review your estate plan every few years to make sure that it is still the best plan for you and your family, no matter what the current tax situation.
Want more information? To see how TCJA affects your income taxes, check out this calculator from The Tax Foundation, an independent nonprofit organization.
Interested in diving deeper? Every year, the Heckerling Institute on Estate Planning holds a conference to discuss developments in estate planning. This year’s conference focused on the TCJA (no surprise). For those wanting to know even more about TCJA, this article gives the highlights of TCJA.
Melanie M. Levan, Esq. is a partner with Dash Farrow, LLP, concentrating her practice in estate planning, estate administration and guardianships.
Dash Farrow, LLP is not affiliated with The Tax Foundation or the Heckerling Institute on Estate Planning. By providing links to these organizations, Dash Farrow, LLP does not endorse these organizations and Dash Farrow receives no compensation from them. They are provided as a courtesy to our readers.