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Estate Planning & Tax Reform


Last week Pat Kingsmill introduced us to some topics related to estate planning. This week I wanted to bridge Pat’s topic with some impacts of the most recent tax reform. Our friend, Jessica Cooley, a CPA and member at GranthamPoole with a focus in trust and estate taxation, is going to walk us through three strategies to take advantage of the tax reform. 

The Tax Cuts and Jobs Act of 2017 (TCJA) reduces individual and corporate income tax rates, removes a multitude of credits and deductions, enhances other provisions and makes numerous additional changes. While the estate tax remains, the integrated gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both doubled, creating new estate planning challenges and opportunities. 

For estates beginning and gifts made after December 31, 2017 and before January 1, 2026, the gift and estate tax exemption and the GST tax exemption amounts increased to an inflation adjusted $11.2 million ($22.4 million for married couples).  Absent further congressional action, as already mentioned, the exemptions will revert to their 2017 levels (adjusted for inflation) on January 1, 2026. The marginal tax rate for all three taxes remains at 40%. The other provisions affecting estates and trusts, such as step- up in basis, portability and the estate and gift taxation of non-residents, remain unchanged. 

The record-high exemption amounts, while temporary, create a unique opportunity to lock in the exemptions permanently. Three strategies to explore are: 

1. Lifetime gifts.  By using some or all the increased exemption amount, you can make additional tax-free lifetime gifts.  By gifting, you can remove assets from your estate even if smaller exemptions have been reinstated when you die. Remember that lifetime gifts are not eligible for a step-up in basis for the recipient. This may increase income tax on any gain realized by the recipient if they decide to sell the gifted asset.  This is unlike assets transferred at death, which receive a step-up in basis by the beneficiary. 

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2. Dynasty trusts.  A dynasty trust is an irrevocable long-term trust created to pass wealth to future generations. Although assets are subject to transfer taxes when initially funding the trust, the assets (and subsequent appreciation) will be untouched by transfer taxes for as long as they remain in the trust. This is true even if the value of the assets grows well beyond the exemption amount or the exemption amount is reduced in the future. A dynasty trust is typically structured to continue in existence for the maximum period permitted under applicable state law. At the end of the period, trust assets must be distributed and will be subject to any estate or gift taxes thereafter. 

Monopoly man.jpg3. 529 plans. The new law expands the benefits of 529 savings plans to include elementary and secondary school expenses, in addition to higher-education expenses. Contributions to 529 plans are removed from your estate, even though you retain the right to change beneficiaries or get your money back. In addition, you can elect to bunch five years’ worth of annual gift tax exclusions into one year without triggering the gift tax.  This means that in 2018, when the annual exclusion is $15,000, an individual can utilize $75,000 per beneficiary ($150,000 for married couples). 






These and other changes made by the TCJA may have an impact on your estate planning strategies.  Reviewing your estate planning documents with a qualified estate planning expert [Pinnacle Trust happens to have two on staff, Pat Kingsmill and Randy Shell] will ensure that you are taking advantage of the opportunities created and minimizing any provisions that may affect you unfavorably.


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Jessica Cooley is a member with GranthamPoole PLLC and is focused in the field of estate and trust taxation, having worked with many clients to successfully navigate trust, gift and estate matters.  Please contact Jessica at jcooley@granthampoole.comwww.linkedin.com/in/jessicacooleycpa, or 601-499-2400.

***The above does not represent tax advice.  Each situation is fact-dependent, and you should seek the advice of a competent advisor. GranthamPoole PLLC is a leading provider of tax, accounting, advisory and strategic services, partnering with clients across a broad spectrum of industries and sizes.