Estate tax exemption changes under new tax law, but not permanently

Question: How will the new tax law affect my estate plan?

Answer: The law is still unclear in many respects, but we do have some clarity on how it will affect the estate tax. Effective Jan. 1, 2018, the lifetime unified estate and gift tax exemption doubled, to $11.2 million per decedent. With portability, a married couple can pass up to $22.4 million, estate-tax free. The rate on the excess remains 40 percent.

However, this is not a permanent change. On

Jan. 1, 2026, the unified estate and gift tax exemption reverts back to the 2017 levels ($5.6 million per individual, $11.2 million per married couple, along with inflationary adjustments). Some believe the exemption could change even before 2026. The law lacks bipartisan support, and this year’s congressional election and the elections of 2020, could cause a reduction in these amounts.

Given the new law, and the fluid nature of the estate tax exemption, it is necessary for you to have your estate plan reviewed. It should have as much flexibility as possible to anticipate whatever tax law changes may occur going forward. I have seen estate plans built around the premise that the law, and the person’s circumstances, would remain fixed. Upon the person’s death, the plan — totally appropriate for the circumstances at the time it was created — proved inadequate to meet the current situation and tax laws.

Although you have not asked about it (and it is not related to the new tax law), be aware that the current annual estate and gift tax exclusion is now $15,000 per year, up from $14,000.

We will update this answer in the newspaper, and provide more information on our website and blog, as the ramifications of the law become clearer. We’ll touch on the new tax law at our free workshops next week, so consider attending: The events start at 1:30 p.m. and end at 4 p.m. at the Palm Beach Gardens Marriott on Jan. 16, Boynton Courtyard on Jan. 17, and Port St. Lucie Holiday Inn on Jan. 18.