Federal tax reform and estate planning

Minnesota residents should be aware of how the 2017 Tax Cuts and Jobs Act will impact estate planning. One of the more significant aspects of the tax legislation is that it gives taxpayers the chance to transfer a substantial amount of money without being assessed estate, generation-skipping transfer or gift taxes.

On Jan. 1, the exemption amounts for federal estate, GST and gift taxes were doubled. The exemption for single individuals increased to $11,180,000, and married couples are now allowed up to $22,360,000 in exemptions. Included in both amounts are yearly inflation increases.

Individuals considering taking advantage of the increased exemption have until Jan. 1, 2026, to do so. On this date, the provisions in the legislation regarding the federal estate, GST and gift extensions will return the exemptions to the 2017 levels, including inflationary increases. The exemption amount for single individuals in 2017 was $5,490,000 and $10,980,000 for married couples.

To take advantage of the increased exemptions, taxpayers can use trusts as part of their gifting strategy. If assets are transferred directly to the beneficiary, they are subject to collections by the beneficiary's creditors. However, gifting assets through a trust safeguards the assets from the beneficiary's creditors as well as from the spouse of the beneficiary if a divorce occurs. Using a trust for gifting also allows provisions to specify how the assets should be used in the future and protects the assets from any future estate, GST and gift taxes through the use of the GST exemption.

An attorney may advise a client of what type of estate planning tools should be used to help them protect their assets for future generations. The lawyer could explain how different types of trusts may be used for gifting.

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