Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act of 2017, Public Law No. 115-97, was signed into law on December 22, 2017 by President Donald Trump. The final bill had tax implications for trusts and estates as well as for individuals and corporations:
Lifetime Exclusion: The lifetime exclusion amount from estate tax under Section 2010(c)(3) is increased from $5,000,000 to $10,000,000 per decedent. This increase is in effect for estates in which the decedent dies after December 31, 2017 and before January 1, 2026.
- The lifetime exclusion amount for gift tax is also increased to $10,000,000 per donor from $5,000,000.
- The amount of the exclusion for both amounts is adjusted for inflation using the Chained-CPI.
No “Clawback” on Exclusion Amount: Regulations will be forthcoming to deal with gifts made during the time this exclusion amount is in effect and whatever the basic exclusion amount under Section 201(c)(3) so that there will be no “clawback.”
- A “clawback,” with regard to this section, might occur if, after the time period lapses, the exclusion amount reverts back to its previous amount prior to the enactment of this bill. Without modification language to avoid a “clawback,” amounts gifted under the increased exclusion levels during of the Tax Cuts and Jobs Act could become taxable.
Tax Rates for Estates and Trusts:
Taxable income is: The tax is:
Not over $2,550 ……………………………………….. 10% of taxable income.
Over $2,550 but not over $9,150 ……………….. $255, plus 24% of the excess over $2,550.
Over $9,150 but not over $12,500 ……………… $1,839, plus 35% of the excess over $9,150.
Over $12,500 …………………………………………… $3,011.50, plus 37% of the excess over $12,500.
Personal Exemption Amount: Deductions for personal exemptions under Section 151(d) are suspended under the Act, but there is an exception for qualified disability trusts. Disability trusts permitted to take the personal exemption deduction under Section 642(b)(2)(C) will be allowed a deduction of $4,150, adjusted for inflation.
Miscellaneous Itemized Deductions: Deductions for miscellaneous itemized deductions subject to the 2% floor, such as tax and investment advice, are suspended for taxable years 2018 through 2025.
- Note: The language of the provision under new Section 67(g) refers specifically to miscellaneous itemized deductions. However, the deduction for trust administration services under Section 67(e) does not fall under miscellaneous itemized deductions. The current view is that this deduction for trusts and estates will still be available, but further guidance is hoped for.
Qualified Business Deduction: The 20% Qualified Business Deduction for pass-through entities will impacts trusts and estates with qualified trades or businesses.
The new QBI deduction benefits all business owners, other than C corporations, irrespective of whether they operate their businesses as sole proprietorships, partnerships, S corporations, estates or trusts. The business deduction is claimed in the taxable year in which the related business income is reported by the taxpayer.