Does the new tax law eliminate inheritance taxes?

With the new Tax Reform beginning to take effect, there is still a large amount of uncertainty when it comes to what changes are taking place and when they come into effect. When it comes to the Estate and Generation Skipping Tax, changes are going to take place starting in 2018. The threshold for being liable for the tax was set at $5 million and has been adjusted for inflation over the past several years.

Currently, an individual’s estate must be worth about $5.5 million dollars for the tax to be applied. Starting in 2018 the tax threshold is increased to a $10 million base, good through 2025. The exemption is indexed for inflation, so it looks like an individual can shelter $11.2 million in assets from these taxes. Another federal estate law provision called portability lets couples who do proper planning double that exemption. So, a couple could exclude $22.4 million for 2018. However, the law’s contains a sunset provision, meaning that absent further Congressional action, the exemption amount would revert to the $5 million base, and indexed for inflation.

Clearly the proper use of a trust is the best way to minimize the effect of that tax, but even with this increase to the Estate Tax, there are many reasons to utilize a trust in your Estate Planning, as I have discussed before.  The one reason that I have found to be most important to my clients is the avoidance of probate by the proper use of a trust.  This is a godsend to the remaining spouse and children.  The next most important reason seems to be the ability to postpone gifts to heirs for many years after death or to spread out the gift over several years.