Advisors, listen up. There are a few changes in the Tax Cuts and Jobs Act that require revisiting- and possibly revising- your clients’ current estate plans.
When the TCJA passed last December, it made several sweeping changes to policies such as the generation-skipping transfer tax. Although it’s worth noting that those changes are still temporary, experts say it’s better to take a second glance at those estate plans now.
What’s The Same
Not everything has changed. For instance, the following provisions have remained the same:
- Transfer tax rates – The current 40 percent transfer tax rate remains the same.
- Unused estate – Surviving spouses are still able to use the deceased’s estate and gift tax exemption.
- Market value – Rules pertaining to stepping up or down in cost basis endure.
- Gift tax exclusion – While the exclusion amount has increased from $14,000 pre-TCJA to $15,000 the annual exclusion is retained.
- Basic exclusion amounts – The TCJA raises the gift, estate and GST tax exemptions from $5 million to $10 million.
- Permanency – While the TCJA has yet to become a permanent part of the tax code, it’s better to be prepared and read up on the changes to tax law to better serve client needs.
- Missing regulation – Rules and liabilities pertaining to gift tax exemptions and estate tax exemptions have yet to be published; this means advisors need to consider clawback a possibility when planning with their clients.
The TCJA does make estate planning more complicated, but after exploring its contents, it’s easy to see that it also contains numerous opportunities for clients.
Mark Parthemer, managing director at Bessemer Trust in Palm Beach, Fla. says the most surprising takeaway from the TCJA is the doubling of the GST tax exemption. Parthemer calls it “astonishing.”
“It’s a detailed conversation, but for some of these families it’s never going to line up better than it is right now,” Parthemer said.
Parthemer also says IRAs need to be revisited, as well.
“You may want to speak with your client about whether using traditional and Roth IRAs to benefit taxable individuals is useful in their particular situation,” Parthemer said.
Where individuals with Roth IRAs have claimed an income tax deduction in the past equal to their amount of estate tax paid, the TCJA still leaves the deduction, but with an added doubling of the estate tax exemption.
In short, this means fewer individuals will be able to benefit from the exemption.
Parthemer offers advice for advisors:
- Talk to clients – Parthemer says the matter isn’t urgent, but says a conversation with clients should happen sooner rather than later.
- Familiarize/understand the new tax code – There are a lot of changes, especially to income tax codes. “Advisors need to be aware of it,” Parthemer said.
- Meet TCJA estate plan expectations – revise and adjust as needed.
The TCJA will be around until at least 2026 unless the provision is made permanent before it is set to expire, which means adjustments to estate and retirement plans need to be made sooner rather than later.
“I think it’s important to have these conversations now,” Parthemer said, “whether or not a client actually pulls the trigger on doing something.”
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.