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The 52nd Annual Heckerling Institute on Estate Planning, hosted by the University of Miami School of Law, took place January 22–26 in Orlando, Florida. With the December signing of the Tax Cuts and Jobs Act (TCJA), the hot topic for the week was its effect on individuals and estate planning. During the conference’s opening day, panelists provided an overview of developments in 2017, including this recently enacted tax legislation.

Here are the top five takeaways from the panel:

  1. Under the new tax law, the 40 percent estate, gift and generation-skipping tax rate was retained, and the 2011 lifetime exemption amount doubled from $5 million to $10 million for the 2018–2025 tax years, adjusted for inflation. This results in an $11,180,000 exemption per person for 2018, affording the flexibility to consider forgiveness of old loans and providing an opportunity to equalize gifts among descendants in addition to more strategic gifts.
  2. Given that the lifetime exemption amount is scheduled to revert back to an inflation-adjusted $5 million per person in 2026, it’s advisable to make gifts now to get appreciation out of the taxable estate. Those concerned about gifting too much from their estate may consider a trust where the spouse has access to income from the trust, i.e., a spousal access trust. In addition, for those not wishing to gift now, disclaimers at death of a spouse are still a viable planning tool to consider, which may provide comfort to surviving spouses that the assets are available to them during their lifetime. As a final note, the panel doesn’t believe assets transferred during life will be clawed back and taxed if the lifetime exemption amount sunsets as scheduled.
    Panelists were asked whether 2026 would affect the portability election. For example, a spouse dies in 2018, the portability election is made to transfer $11.5 million exemption equivalent to surviving spouse and the surviving spouse lives to 2027. How much exemption is available under the portability election from 2018? Is it $11.5 million or the $5 million sunset amount? Panelists agreed it should be $11.5 million from 2018.
  3. The deduction for state and local taxes not paid or accrued in a trade or business are combined and capped at $10,000 for the 2018–2025 tax years under the new tax law, a provision that also applies to individuals, trusts and estates. The panel discussed how those affected by the cap may consider gifting partial interests in real estate to property trusts for the benefit of children. For example, gifting partial interest in property to five different trusts would permit a deduction of up to $10,000 for each trust, providing a potential $50,000 total deduction.
  4. The deduction for home mortgage interest expense for mortgages after December 15, 2017, is limited to interest paid on the first $750,000 of indebtedness for the 2018–2025 tax years. The panel noted that, while the deduction would be retained for second homes, no deduction would be allowed for interest paid on home equity loans effective January 1, 2018.
  5. With the repeal of miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor, excess deductions on the termination, i.e., expense in the final year of an estate, are no longer deductible for the 2018–2025 tax years. The panel suggested planning for the deductibility of such expenses against income in the estate to avoid loss of the deduction.

BKD is covering the TCJA at and on the Simply Tax Podcast. If you have questions about your specific situation and how tax reform may affect your family, contact your tax advisor or click here to contact us.

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