November 2017

Legal Update: House Tax Bill Arrives…Now What?

On November 2, 2017, the House Ways and Means Committee issued H.R. 1, The Tax Cuts and Jobs Act.  It is a 429 page bill, and is currently in the process of being “marked up” by members of the House.  We expect to see revisions to the bill by the end of this week.  The House leadership hopes a vote can take place in the House before Thanksgiving.The Senate Finance Committee has indicated it will issue its tax bill by the end of this week. Based on preliminary reports, there may be a number of changes required to reconcile the House and Senate versions of the Bills. This will be a moving target for the next several weeks, and perhaps through the Christmas recess or even longer.Here are the estate planning highlights from the first version of the House Bill: 


  Current Law     House Bill
Estate/gift/GST tax exclusion     $5.6 million in 2018    $11.2 million in 2018 increasing until repeal in 2024
Estate/gift tax rate    40% 35%
Repeal   Estate and GST tax repealed in 2024

Gift tax not repealed


These provisions mean that a married couple can transfer cumulatively during lifetime and at death assets valued at up to $22.4 million (as adjusted through 2024 repeal) without paying an estate, generation-skipping or gift tax.  After 2024,  a married couple will not have any estate or generation-skipping tax owing at death, regardless of the size of the estate.  However, while the estate and generation-skipping tax are repealed in 2024, the gift tax is not repealed and gifts made during lifetime will continue to be subject to the threshold of $22.4 million for a married couple or $11.2 million for an individual (as that number may be adjusted).

If taxes are owing, the tax rate will be 35%. 

Interestingly,  the House Bill retains the concept of income tax “basis adjustment” as to each of a decedent’s assets owned at death even though there will be no estate tax owing.  This has been a controversial topic and discussions in the past of estate tax repeal have generally eliminated “basis adjustment.”   This means, for example under the proposed House Bill, that when the estate tax is fully repealed in 2024, if a decedent bought stock for $100 but it was trading at $300 at date of death, the income tax basis in the stock adjusts to $300 so that not only will there be no estate tax on the stock (at its $300 value) but there will be no capital gains tax if sold by the decedent’s beneficiaries for $300. 

This is just the first draft of the tax plan.  We expect changes over the next weeks. We will continue to keep you updated as we review the various drafts and markup so that we can advise on changes to your estate planning.