Republicans Pass Tax and Spending Bill – What Does it Mean for Your Estate Plan?
Last week, by the narrowest of margins, the Republican majority in Congress passed, and the President signed, a sprawling tax and domestic policy bill that includes extended and expanded tax cuts, some permanent and others temporary, along with increases in spending as well as cuts to Medicaid, food benefits and other programs. While only time will tell the full impact of this legislation, positive or negative, from an estate planning perspective here are a couple of items you should be aware of:
Estate, Gift, and Generation Skipping Transfer Tax Exemption
The legislation does not repeal the federal estate tax. Rather, effective January 1, 2026, the federal estate and gift tax exclusion and the generation-skipping transfer (GST) tax exemption will increase to $15,000,000 per person. This means that an individual can transfer $15,000,000 free of any federal estate, gift, or GST taxes either during their lifetime or at death (a combined $30,000,000 for married couples). This is an increase from the current $13,990,000 amount ($27,980,000 for a couple). Additionally, this amount is increased annually based on a cost-of-living adjustment.
These changes are “permanent” in the sense that they will not expire as the current law was scheduled to do at the end of this year. That does not, however, mean it cannot be changed again by future legislation. Therefore, using your exemption now may still make sense for some people.
Step-Up in Basis Preserved
While there was discussion about ending the step-up in income tax basis and triggering capital gains tax on death, the law as passed did not make any changes in this area. This means individuals will continue to inherit appreciated assets at their fair market value on the date of death thereby minimizing, or even eliminating, capital gains on a future sale.
While there is a tendency to think these changes only affect the ultra wealthy, any time significant legal changes occur, such as these, you should review your estate plan with a qualified professional to determine what, if any, actions should be taken in your unique situation. Stay tuned as more becomes understood about the consequences of this new law.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.