On January 1, 2018, pursuant to the Tax Cuts and Jobs Act of 2017, the estate, gift and generation-skipping transfer tax exemption nearly doubled to $11,200,000 per person. If you’ve been following this site, you know that I don’t tend to write on tax topics or techniques — and this post really isn’t any different. There are, however, non-tax implications to having an exemption that’s almost 20 times what it was 20 years ago.
For decades, estate plans have been driven off of the estate tax. People went to their lawyers and were told what they needed to do to avoid a confiscatory tax that could be as high as 60%. Millions of estate plans accordingly were drafted to include credit-shelter planning and other like structures. When the exemption went from $600,000 to $1,000,000 and even to $3,500,000, the discussions didn’t change too much — other than an increased use of disclaimer plans as a way to hedge against a few different tax environments.
A “permanent” $5,000,000 exemption seemed to have the beginnings of a sea change in how wealthier clients approached their estate planning. More than I had ever experienced before, clients felt that they had simply given enough. Not all, but quite a few. The prospect of a large estate tax bill suddenly became less motivating when the kids had $5 Million or better each already in hand. I’ll write more about this soon, but clients were beginning to feel out what felt like enough — or perhaps what felt like too much — in the hands of the next generation.
It’s only been a couple of weeks since the tax bill was finalized. And with the holidays and other end of year matters, there’s only been so many conversations that I’ve been able to have — but I am already seeing how the questions with the wealthier of my clients are changing. Yes, the “how much is enough” question is impacted. So, too, though, is the question of timing of gifts. But I suspect the biggest impact will be the drive towards purer, deeper stewardship conversations, with fewer of the distortions and distractions that tax planning creates.
The “doubled” exemption is set to expire after 2025 — so the perhaps the impact will diminish over time unless the higher exemptions are made permanent in later legislation. We’ll see, but I think this exemption change will finally require estate planners to shift their focus if for no other reason than wealthy clients will end up demanding that they do.
What do you think?