When President Trump signed the Tax Cut and Jobs Act last December, many people understood that their taxes were likely to change significantly. Tax planners and CPAs are currently working with their clients to prepare for all the changes to tax law.
What has received less attention is how the tax law changed certain elements of some individuals’ estate plans. Depending on your specific circumstances, you may need to modify your estate plan to better accomplish your goals.
Estate tax exemptions
The Republicans sought to repeal estate tax outright. While they were unable to get the repeal into the final law, they were able to increase the estate tax exemption.
Last year, the estate tax exemption was $5.49 million per individual. This means that a couple could exempt nearly $11 million. The exemption will more than double in 2018 to $11.2 million ($22.4 million for a married couple).
Changing your jurisdiction to Florida
One change that did receive a lot of attention was the reduction of individuals’ ability to deduct state and local taxes. Going forward, there is a $10,000 cap on the amount of state and local income and property taxes that you can deduct on your federal income tax return.
This change has inspired some individuals who own property in Florida to consider changing their primary domicile to take advantage of the state’s more favorable estate tax rates, now that the state and local tax deduction is limited. The IRS has specific rules for changing residency, and maintaining proper documentation is critical.
Additionally, high-tax states like New York, New Jersey and Illinois will often challenge a residency change in order to collect the taxes they feel they deserve. It is prudent to consult with a tax adviser or an attorney who can review your plan and ensure everything is up-to-date with the latest tax law.