Estate Planning Strategies Under the New Federal Tax Law

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Several events should trigger a review of your estate plan, such as the birth of a child, a divorce, or the death of an heir. Another reason to review your estate plan is a change in the tax code. When Congress passed the Tax Cuts and Jobs Act (TCJA), I received numerous calls from clients with questions about how the changes to the federal tax code impacted their estate plans.

Because of significant changes to the federal estate tax exclusion and subsequent changes to the Maryland estate tax law, I strongly urge people to review their estate plan with a Maryland estate-planning lawyer as soon as possible. A change in your estate planning strategies based on the new tax laws could save your heirs a significant amount of money when you die.

The New Federal Estate Tax Exclusion

For clients with high-value estates, the most significant change in the tax code may eliminate their need to take steps to avoid federal estate taxes. The TCJA doubled the federal estate tax exclusion. As of January 1, 2018, an individual has an exclusion of up to $11,180,000 before the estate is taxed. For couples, the exclusion is $22,360,000. The exclusion amount is also subject to annual inflationary increases.

With the change in the exclusion amount, the federal estate tax may not be a concern for you any longer. Therefore, if you are utilizing complex trust agreements and other estate planning tools to reduce the value of your taxable estate, using trusts and other tools may no longer be necessary. However, before you rush to undo everything you and your Maryland estate-planning lawyer have put into place to protect your estate, some considerations require careful analysis. 

The Sunset Clause in the TCJA

On January 1, 2026, the federal estate tax exclusions revert to the 2017 amounts, which were $5,490,000 for individuals and $10,980,000 for couples. Therefore, if you make changes to the provisions in your estate plan designed to avoid estate taxes now, those same provisions may be necessary again in 2026. Of course, the tax code could be modified again before the “sunset” date, or Congress could extend the provisions beyond 2026. Unfortunately, there is no way to know for sure what will happen between now and 2026.

Maryland Estate Tax Laws Changed Too

Unfortunately for Maryland residents, there is another issue that must be considered before they rush to change their estate plans. The Maryland General Assembly enacted changes to its estate tax law for 2019. The new tax law sets the exclusion for Maryland estate taxes at $4 million for 2018 and $5 million for 2019 and beyond. The amounts will not change as there is no provision for changes based on inflation. before Maryland's new tax law, the state exclusion would have increased to match the federal exclusion beginning in 2019. 

Therefore, you must be very careful when considering changes to your estate plan. While the value of your estate may fall under the new federal exclusion, the value may exceed the state exclusion. One helpful element is that the state exclusion is now subject to portability between spouses just like the federal exclusion. This element may help couples resolve the significant difference between the federal and state exclusions.

Bottom Line — See Your Maryland Estate Planning Lawyer Now

The above is only one strategy that may change because of the new tax laws. Other changes in the tax code could significantly impact your estate plan and require changes to the plan. Contact Thienel Law today to schedule a time to review your estate plan as soon as possible. Maryland estate-planning lawyer Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.