Ever since the passage of the Tax Cuts and Jobs Act in December, the headlines have been buzzing about the resulting income tax consequences for individuals and businesses, but what about the intersection of the Act and estate planning? After all, nothing is more certain than death and taxes.
Under the Act, the estate, gift and generation-skipping transfer taxes remain in effect with double the unified federal gift and estate tax exemption and the GST tax exemption (from $5 million to $10 million). These amounts are indexed for inflation. For 2018, the gift and estate tax exempt amounts and GST tax exempt amount is expected to equal $11.18 million ($22.36 for married couples). However, the increased exemption sunsets in 2026.
Estate, gift and GST taxes continue to be set at a flat 40 percent rate.
The Act left portability unchanged. If a spouse dies without exhausting his or her lifetime gift and estate tax exemption, so long as the decedent’s executor makes the proper election on an estate tax return, the unused exemption is credited or “ported” to the surviving spouse for use during life or at death. The deceased spouse’s unused exemption at the survivor’s death will be combined with the survivor’s own estate tax exemption to offset any estate tax liability in the survivor’s estate. Thus, for some married couples, an “all to the other” approach with a portability election may be preferable.
When “All to the Other” May Be All Wrong
While at first blush, portability might look like the right answer for married couples, there are instances in which this approach may not be recommended: