In December 2017, Congress passed a highly-debated and widely-discussed tax bill. Among many other sweeping changes, there could be effects on estate planning for people in Pennsylvania and throughout the country. The bill contains a few provisions in that regard.
There are many aspects of the tax system that remain the same. Estate, gift and generation-skipping transfer taxes remain in place and their effective rate remains 40 percent. However, under the bill, the unified exemption has been roughly doubled. This exemption is indexed to inflation and could grow in coming years. The increased exemption will remain in place until it sunsets in 2026. The concept of portability for married couples is also intact, and the amount of the exemption that one partner leaves unused at death can be transferred to the surviving spouse.
The increased exemption encourages the use of portability and simple transfers from one spouse to another. However, some families may wish to create a bypass trust that ensures that each partner’s children will remain beneficiaries of the family’s estate. In other cases, creditors of the surviving spouse may be a concern; such trusts allow assets to be protected for the family instead.
For people who already had trust documents and a will in place, the tax law changes may be a good incentive to review their documents with an estate planning attorney. Some formulas used to create trusts are based on current tax laws and should be revised to reflect the changes. For those who don’t yet have estate planning documents in effect, this can also be a good reason to lay the groundwork for a plan.