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Horizon Elder Law & Estate Planning Blog

Sunday, November 11, 2018

Does the Tax Cuts and Jobs Act Affect Your Tax Savings Plan?

One of the goals of an effective estate plan is to decrease or eliminate taxes for your heirs. When Congress passed the new Tax Cuts and Jobs Act (TCJA), there was a lot of discussion about various elements of the TCJA and how it impacted the average worker.  However, there was not as much discussion about whether the TCJA impacted estate planning. As with any new law related to taxes, it is important to review your tax savings plan with your California tax savings planning attorneys to determine if the new law requires you to modify your estate plan.

Some Elements of the TCJA That May Impact Your Tax Savings Plan

One of the biggest elements and the most discussed element of the TCJA related to estate plans is the change in the exemption amount. There was much debate about whether gift and estate taxes should be completely repealed or not during the initial negotiations for the tax revision. In the final bill, the gift and estate tax were not completely repealed, but it was doubled. For 2018, the exemption is roughly $11.2 million per person.

However, there is a sunset clause at the end of 2025 that phases out this increase unless a new law is passed extending the new exemptions. In addition, the annual gift tax exclusion was increased so that you can make additional annual gifts to beneficiaries without cutting into the exemption for gift and estate taxes.

An important feature of the TCJA is that it maintains the portability of the estate tax exemption for married couples. A surviving spouse can use any unused exemption of a deceased spouse. This provision is very important in some cases for a tax savings plan.

Your tax savings plan may include one or more provisions that may be simplified now with the changes in the tax law.  Other tax savings planning opportunities that you may want to consider with the TCJA include: 

  • 529 Plans — The TCJA expanded the 529 college savings plans.  Contributing to these plans can remove assets from your estate to avoid taxes while you retain the right to get your money back or change beneficiaries. One benefit is that you can group five year’s of annual gift tax exclusions into one year without using your exemptions or triggering GST taxes. Another important change that could significantly impact some tax savings plans is that 529 accounts may not be used for elementary and secondary school expenses, which could translate into significant tax savings for some families.

  • SALT Deductions — For some individuals, the new state and local tax deduction cap of $10,000 may require some changes to your tax savings plan. However, there are some options that you may be able to take advantage of such as shifting taxes to a business or taking other tax deductions to balance out the change.

  • Charitable Contributions — Some individuals used charitable planning as part of the tax savings plan. However, the TCJA increased the adjusted gross income limitations for cash donations from 50% to 60% for public charities. The increase is phased out in 2025; however, this could impact some estates because charitable strategies may be less valuable from a tax-saving perspective. 

Review Your Options With Your California Estate-Planning Attorneys

The above changes under the TCJA and other changes could significantly impact your tax savings plan and estate planning strategies. The best step you can take is to review your estate plan with your attorney in light of the new tax laws to ensure that you take advantage of all options to minimize any potential tax implications for your family. Contact the Horizon tax-savings-planning attorneys today to schedule a consult.


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