The passage of the Tax Cuts and Jobs Act has opened up new opportunities for people in Ohio who wish to transfer wealth. Starting in 2018, the exemptions for federal gift and estate taxes have been doubled. An individual can give tax-free gifts up to $11,180,000, and a married couple can give away as much as $22,360,000 without inflicting income tax on the recipients.
Some people in Ohio might want to review their estate planning because there has been a change in the estate tax exemption. The exemption has been changed to more than $11 million for individuals and $22 million for couples. Therefore, people who have made provisions in an estate plan to avoid this tax might want to revisit that plan to simply allow the entire estate to go to a surviving spouse.
With the change in the federal exemption, single people whose estates are worth less than $11.2 million and married couples whose estates are worth less than $22.4 million no longer need to employ some of the tools they may have been using to protect their estate from tax. People may want to review their estate plans and see what changes can be made.
Rumors of estate tax reform could create new questions for people in Ohio who have already set up an estate plan. Their plans would have been based on current tax laws, and many people create trust structures to control tax exposure to heirs. The potential repeal of estate taxes and generation-skipping taxes presents an opportunity to consider how to update an estate plan should the laws change. Such a proactive analysis could enable someone to quickly rework a plan in the event of tax reforms and limit the amount of time that an obsolete plan is in effect.
Before the American Taxpayer Relief Act of 2012, there were many families that created trusts as a means to avoid estate taxes. With the estate tax exemption now at $5.45 million per person, estate taxes will only be an issue for far less than 1 percent of Americans. Married couples also have the option to use portability, so one spouse's unused estate tax exemption can be passed to the surviving spouse.
Ohio residents may be aware that trusts can be a flexible and valuable estate planning tool. However, they are also costly and complex, and they may be rendered unnecessary by changes in tax laws or evolving family dynamics. Bypass trusts were a prudent option for many couples in the 1990s, but they offer few real benefits today.
People in Ohio who have used trusts as part of their estate planning may want to review those documents. There have been a number of changes in federal tax laws in the past several years that might make those trusts unnecessary or necessitate a change in them. One big change is in how trusts are taxed. For 2016, a trust with an adjusted gross income above $12,300 will be taxed at the highest marginal rate. As a result, it may be more cost effective to have either the beneficiary or the grantor pay the tax on income since the AGI threshold is significantly higher for individuals and married couples filing joint returns.
Ohio residents who are considering the use of trusts as part of their estate plan may wonder what the tax burden might be on themselves or beneficiaries. While determining the tax on trusts is a complex issue, there are a few consistent guidelines.
Individuals in Ohio who prepared their wills and trusts several years ago may find that the documents are now out of date. One of the differences is in tax laws for high-asset couples.