Tax Reform 2018: How It Could Impact Your Estate Plans
by Orchard Law Firm | Topics: Featured Posts
The Minnesota Legislature is making big decisions on tax reform this week that will have an impact on estate and gift tax planning. The changes come as the state legislature tries to align the state tax system with the new federal system that saw a major overhaul in 2017 thanks to the 2017 Tax Cuts and Jobs Act.
Both the Minnesota House and Senate have passed a compromise bill this week. However, Gov. Mark Dayton has been critical of key provisions in the bill and vetoed it on Thursday.
The state’s tax bill must be approved before the 2018 state legislature session ends on May 21, unless Dayton calls a special session to lengthen negotiations.
The current bill would more closely align the state’s taxes with federal tax law and include moderate income tax rate cuts on the state level. Governor Dayton had asked the legislature to include $138 million in emergency funding for public school districts that face budget shortfalls, which was rejected.
Governor Dayton also says the current bill favors businesses and wealthier Minnesotans, giving larger returns to the highest tax bracket.
If no state tax reform is passed, it could mean major headaches and hiccups in tax filings for Minnesotans next year, as well as possible higher rates.
How This Affects Estate and Gift Planning
The federal Tax Cuts and Jobs Act of 2017 changed the basic exclusion amount for gifts made after December 1, 2017 and before January 1, 2025 from $5.49 million to approximately $11.2 million per person or $22.4 million for married couples. The rate for taxable transfers that exceed that amount remains at 40 percent.
In Minnesota, estate tax exemptions—the amount someone can leave to beneficiaries before paying estate or gift tax—increased from $2.1 million per individual in 2017 to $2.4 million in 2018. That exemption is set to increase by $300,000 per year through 2020 until the exemption reaches $3 million.
Basically, if your net estate is expected to grow over $5.6 million before 2026, a thorough review of your current estate plan could mean making modifications in order to take advantage of these federal tax changes, as the current law is set to end in 2025.
Review Your Plan
Due to these significant federal tax law changes, and potential changes at the state level, it’s essential to review your estate plan to ensure that your needs and objectives are still being met. Your documents should allow for flexible, key tax planning decisions to be made after death, such as use of Disclaimer formulas or Clayton elections.