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Federal Estate Tax Changes In The New Tax Law


The federal estate tax law has not been eliminated as was expected, but it has been changed in a major way. However, under the new tax law, the estate tax exemption limits have been doubled in such a way that fewer people will have to worry about the federal estate tax. Under the old law, a person could exempt up to approximately $5.6 million from estate taxes, with double that amount for couples. Under the new law, individuals will be able to exempt approximately $11.2 million, with double the amount for couples.

The estate tax has long been criticized as a death tax that hurts small businesses and family farms by taxing the value of a decedent’s estate at almost 40 percent. With the estate tax exemption, large estates can transfer the value of the exemption out of the estate tax free, thereby reducing the value of the estate and decreasing the amount to be paid in taxes.

It is important to note that the new changes or increases to the amount of the estate tax exemption are not permanent raises. The increased exemption amount will expire in 2025, and the figures will revert back to pre-2018 amounts unless Congress passes a law making the changes permanent. The exemption amounts will also be slightly increased over the years to account for inflation.

Because the changes will not make the increased exemption permanent, it is important to take advantage of the changes while they are available. Individuals or couples who want to take advantage of the new law can do so in various ways. They can make lifetime gifts, transfers to generation skipping trusts, irrevocable trusts, or make charitable gift up to the amount of the exemptions. It is important to note that the annual gift tax exemption will also go from $14,000 to $15,000 per individual gifted. Depending on how much is gifted in a year, a person’s lifetime estate exemption may be affected.

There are other legal avenues that a person with a high value estate can use in order to transfer wealth and distribute it to heirs so as to decrease the value of an estate upon death. However, depending on how the inheritance to heirs is set up, the heirs may still end up being responsible for taxes, for example for the increase in the value of inherited assets. This is why, depending on a person’s estate planning goals, it is important to explore means of passing on assets that will leave the heirs with as little liability as possible.

These new changes will not affect the payment of any state estate taxes; Florida has no estate tax, and therefore people will not be affected in terms of their state obligations.

Contact Us for Legal Assistance

With the new changes, you may want to review your estate plan and determine if you are taking advantage of the new changes or if you need to make updates. Call an experienced estate planning attorney from the Millhorn Elder Law Planning Group located in The Villages, Florida for a consultation to discuss this issue further.




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