The “Act”
Estate Planning in Vermont and the impact of the “Tax Cuts & Jobs Act” signed into law on December 22, 2017
By Jack Davidson
The Income Tax
Some good news for our clients and “complicated” news for our non-profits.
As a result of the significantly higher standard deduction, non-profits may fear the impact on contributions. But there is one case where both the donors and the non-profits will discover good news.
Donors age 70 1⁄2 may make charitable donations through their IRAs, (including rollover IRAs, inherited IRAs, and SEP or SIMPLE IRAs that are no longer active and receiving ongoing employer contributions). In the past, many donors itemized their deductions and the charitable donations were attractive “bottom line” deductions. Many taxpayers will now find that they plan on taking the standard deduction of $12,000 or, if married, $24,000, rather than itemizing the deduction. Diverting taxable income from the IRA amounts to an “above the line” charitable deduc- tion. Our clients can still have the benefit of charitable deductions and take the standard deduction as well, as long as they are 70 1⁄2 and we make the distributions from their IRA. At the Trust Company of Vermont, we have designed a system for our clients to facilitate charitable gifts from their IRAs.
The Estate Tax
Some “complicated” news for some of our clients and “complicated” news for our non-profits.
The Act increased the federal exemption to $11.2 million as of 2018. Technically, it simply doubled the federal exemption of $5 million, set in 2010, indexed to inflation, which would have been $5,600,000 in 2018. Prior law also included portability of the exemption for married couples so that a $22.4 million estate would not be subject to estate taxes. This is complicated news for nonprofits. There is less incentive to take charitable deductions. Vermont’s exemption remains unchanged at $2,750,000. Vermont does not have portability, but a good estate planning attorney will help save a Vermont tax for married couples under $5.5 million. The Vermont tax is currently 16% of the amount above the exemption, and may be attractive enough to ease the fears of the non-profits.
Some “complicated” news for some of our clients.
Anyone with estimated estates above $5.6 million may still want to visit their lawyer sooner than later. There may be a high probability that the tax bill will sunset in 2025 and revert to the $5 million base, indexed. Outright gifts and gifts in trust may save more than 40%. When the law sunsets, some may need to be in the race with the grim reaper and the IRS. One or the other may win, and your lawyer will work to have you win the race.