taxes

On December 22, 2017, President Trump signed a bill that makes huge changes to the American tax system—including the estate and gift tax. As of 2018, individuals can give away up to $11.2 million free of estate and gift tax, and couples can combine that to give away up to $22.4 million! These exemptions are indexed to inflation and scheduled to revert back to 2017 levels in 2026 (unless Congress extends them or makes them permanent at that point).

This sounds like big news, but, to tell the truth, there’s no benefit to most of us. Less than 1% of Americans were subject to the estate tax under the old law–now even fewer of them are. The Joint Committee on Taxation now estimates that there will be only 1800 taxable estates (in the ENTIRE COUNTRY) in 2018, compared to 5,000 under the previous law, and 52,000 in 2000, when the exemption was $675,000.

So, what does that mean for most of us? It means that estate planning isn’t really about minimizing the estate or gift tax any longer. (And it hasn’t been since 2012 for those with $5 million or less.) But that doesn’t mean you don’t need an estate plan.

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In today’s cautionary tale, Forbes published an article this week describing a case requesting $1.2 million refund on a bill from the IRS for penalties and interest resulting from the executor’s failure to file an estate tax return and pay taxes on time.

The facts are messy, complicated and probably unique: there are really not all that many estate planning attorneys struggling with brain cancer, inexperienced executors who would repeatedly ignore notices from the probate court for missed deadlines, executors who would consistently defer to an attorney who repeatedly fails to follow through, families who then squabble over how to allocate the tax liability and then try to get the executor removed. And all of this for an estate worth $12 million.

But still, the larger point is that, ultimately, it is the executor who is legally responsible for filing taxes that are due. The burden on the side requesting the refund is to show that the failure to file the tax return properly was due to reasonable cause and not willful neglect. To put that in more common, parental terms: it doesn’t matter if you have a really good excuse, or that you have never done this job before, or if someone else told you that they were going to do it–in the end, it’s up to you to see that the job gets done. Period.

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Articles Tagged with taxes

New Tax Act Doubles Gift and Estate Tax Exemption: Now What?

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