Episode 442: Estate Planning: Navigating the Expiration of the 2017 Tax Cuts and Jobs Act

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If you are in need of estate planning, it is critical to enlist the help of a reputable tax attorney to begin navigating the expiration of the 2017 Tax Cuts and Jobs Act. Why act now? Certain provisions of the 2017 Act are set to expire on December 31, 2025, which may have a profound and possibly negative effect on a person’s taxes if they have not engaged in careful tax planning. Add to that the uncertainty of the outcome of the 2024 presidential elections, and clients who anticipate leaving behind large estates will have good reason rework their estate plan.

Provisions of the 2017 Tax Cuts and Jobs Act

Before breaking down the provisions of the 2017 Tax Cuts and Jobs Act, it is important to address the various names this legislation can go by for clarity’s sake. Some commonly used monikers for it are “Pro Tax Law” and the “Trump Tax Bill.”

Regardless of what you call it, the legislation was passed early in the Trump administration and contains some of the following provisions:

• Minimizes corporate taxes
• Increases the gift tax and estate exemption
• Increases opportunity zones which give way to investments and some certain targeted investment loans
• Takes away itemized deductions
• Limits state and local taxes
• Limits casualty losses to federally declared disaster areas
• Eliminates theft loss

The bottom line for this piece of legislation is that it is a major bill that has changed the landscape of taxes and the way the government is funded.

Why Navigating the Expiration of the 2017 Tax Cuts and Jobs Act Is Important for Estate Planning

What is the big deal about this bill that has us discussing it today? Most of the provisions of the 2017 Tax Act are not permanent and are set to expire on December 31, 2025. This means that if Congress does not take any action to extend the current provisions, or change or otherwise alter the pre-existing 2016 law, taxpayers will be forced to revert back to 2016 tax laws.

This potential change is essential for estate planners to understand as well as the implications it could bring. For example, currently the estate tax exemption is around twelve million dollars for an individual and twenty-four million dollars for a couple, although it is important to note that this number changes annually based on inflation. However, if taxpayers must revert back to unchanged 2016 tax laws, that amount will revert back to around a seven million dollar exemption for individuals.

In other words, if Congress takes no action in the next year and a half, it may prove to be a major issue for people doing estate planning who also have a significant amount of wealth.

What Is Estimated to Happen Based on 2024 Election Results?

If former-President Donald Trump is reelected, one might think that since his administration created the bill that its provisions might be extended. However, this is not guaranteed to be a sure thing, primarily due to the Republican to Democrat ratio currently in Congress.

Should it be so simple as to just extend the Trump era tax cuts, it still requires both the House and Senate to pass that legislation, in addition to getting the President’s signature. If Trump is reelected and there is a Republican majority in both the House and Senate, it might be possible for the tax cut provisions to be extended.

If Trump is not elected and there is not a Republican majority in Congress, it is possible Congress could strike some sort of compromise tax bill that will yield completely new tax laws. Although, be forewarned that a divided Congress can result in no progress, and if they take no action at all, it would revert us back to 2016 tax laws.

What To Do for Estate Planning Now

Without knowing what the 2024 election results will be, or what Congress may do before December 31, 2025, there are still actions people can take now. For example, if a parent has a significant amount of wealth such that they could anticipate being able to distribute some to their children, they may have an opportunity to give away between twelve million dollars (for an individual) and twenty-four million dollars (for a couple) to their children in trusts without it being taxed, if done by December 31, 2025. The important thing to note is that this must be done irrevocably, which means parents can never get that money back.

On the other hand, if a parent has twelve million dollars to put into a trust for their child but does not do so, and that person passes away after December 31, 2025 without Congress doing anything to make changes, it is plausible that the child would be exempt from having to pay tax on only seven million dollars of the twelve million. This means the child will have to pay taxes on the remaining five million.

This is the process for money left to children. Money left to a spouse is not taxed until the spouse dies. Money given to charity is not taxed.

How an Attorney Can Help with Navigating the Expiration of the 2017 Tax Cuts and Jobs Act

Some individuals may choose to wait and see the result of the 2024 Presidential election and then try to make changes to their estate documents before December 31, 2025. That method could be difficult for people with complex estates. Drafting competent and enforceable estate documents takes time. It may be inadvisable to wait until after the election and then try to do change or put in place estate plans. In simpler cases, a reputable attorney may be able to assist despite the time crunch.

Ideally, people must realize it takes proactive work and planning to ensure that their estate planning happens as intended and in a timely way. It is wise for individuals to be thinking about what their game plan will be as election day approaches.

Every person’s situation is different, but working with a reputable tax attorney before the need is imminent can give individuals some sense of agency and control over what happens next.

Do not leave navigating the expiration of the 2017 Tax Cuts and Jobs Act until the last minute this election year. Consider reaching out to a tax attorney to help guide you now in multiple scenarios for your estate so that whether you choose to do something before or after election day, you will have a plan in place.

By Harold "Hap" May, P.C. on August 2, 2024   /   The Legal Play Podcast   /   Leave a comment