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What you need to know about the new estate and gift tax laws

As a reasonably well-to-do Ohio resident, you probably already have a will. Maybe you also created one or more trusts that benefit your children or grandchildren. In all likelihood, you created these documents and possibly others as part of your overall estate plan and with an eye toward saving taxes.

Now, however, comes the new Tax Cuts and Jobs Act, and you may need to revisit your entire estate plan. As reported by the New York Times and others, Congress passed this new law late last year, and President Trump signed it into law on Dec. 22, 2017.

Three of the primary elements of the Tax Cuts and Jobs Act are as follows:

  1. Increased estate tax exemption
  2. Increased gift tax exemption
  3. Preservation of the step-up basis for assets that pass at your death

Estate tax

Under the old law, estates worth over $5.49 million had to pay a federal estate tax. Under the new law, if you die before 2026, your estate will pay no federal estate tax on the first $11.2 million of its value. The new law also calls for this threshold to increase with inflation each year between 2018 and 2026. Since Ohio repealed its state estate tax in 2013, this means that most Ohio estates will pay no estate taxes at all.

But what happens if you die after Dec. 31, 2025? No one knows. The new law expires at the end of 2025, at which point the threshold will revert to the 2017 level. Or not. It is an open question whether future congresses and administrations will repeal the new law, let it expire, extend it, revise it or do something else.

Gift tax

As of this year, you can give a tax-free $15,000 gift (money or property) every year to anyone you choose. While this is the maximum gift you can make to any one person, charity, etc., you can give as many tax-free $15,000 gifts each year as you desire. If you have several children and grandchildren, this gives you a real tax break while helping your loved ones now.

In addition, you and your spouse can take advantage of a special one-time-only transfer to the Section 529 prepaid tuition plan(s) or college savings plan(s) you may have set up to benefit your child(ren) or grandchild(ren). You will pay no gift tax on this contribution of up to $150,000 because it is treated as though you made it over five years.

The new Tax Cuts and Jobs Act offers you numerous opportunities to make a will, give a gift and/or set up a trust. If you have not yet created an estate plan, now is a good time to do so. If you have an existing estate plan, now is a good time to review and update it.