Estate & Gift Taxes: What Changed (and What Didn’t) in Trump’s Big Beautiful Bill

In this episode we discuss the recent updates to estate and gift taxes as part of Trump's 'Big Beautiful Bill.' This episode is essential for anyone interested in estate planning and tax strategies. Tune in to stay informed and make the best decisions for your future!

Episode Transcript

Speaker 1 (00:31):
Well, good afternoon, Michigananers, and welcome back to Tuesday with Tom,
Michigan's Only podcast, where we talk about estate planning, a
state settlement, and everything in between. As always, I'm your host,
Tom Doyle, a state planning attorney, lifelong Michigan resident, and
your guide to planning for the future. Well, brief review

(00:54):
of last episode. Been a little while ago, been trying
to enjoy some time off, But the last episode was
why older Americans may be better off staying unmarried. So
if you're considering possibly getting married later in life, maybe

(01:15):
a second marriage later in life, I encourage you. I'm
not trying to discourage you from getting married, but I
would encourage you. Please listen to last week's episode where
I discuss why, under some circumstances, older Americans may be
better off as far as the law is concerned, staying unmarried.

(01:39):
Today's show, well, today we're going to be diving into
the big Beautiful Bill. Yeah, that's what they're calling it,
and that's what was recently signed by President Trump. What
does this mean for your state and gift tax planning? Well,
let's break it down into what's changed and what's stayed

(01:59):
the same. But Please remember what I'm about to discuss
is meant to be educational and informative. It is not
legal advice. As always, you need to work with your
attorney to figure out what makes the most sense for
you and your estate plan a state and gift taxes.

(02:35):
What changed and what didn't in Trump's big beautiful bill. Well,
let's talk about the unified credit amount. The unified credit
amount is the amount that you can own at the
time of your death, essentially and not have to worry
about paying federal estate taxes. Well, under this new law,

(02:55):
the federal estate gift and generation skipping transfer to exemption
has been increased again. Building on the twenty seventeen Tax
Cuts in Jobs Act, which temporarily doubled the exemption, this
bill now permanently locks in that higher exemption and going

(03:17):
forward will be indexed for inflation. So the new exemption
amount in twenty twenty five is twenty six million per couple.
That's thirteen million dollars per individual, and it will be
indexed annually, so you don't have to worry that next
January it's going to be dropping back to that seven million,

(03:39):
which was all the concern that we had. Now that
this statute has been signed. This law has been signed
by President Trump. It's locked in at that thirteen million
dollars per individual twenty six million dollars per couple. Again,
this is now permanent, removing that sunset that was set

(04:00):
to occur at the end of twenty twenty five. Portability
has been made simpler. Portability what is that. That's where
a spouse who dies and hasn't used up all their exemption,
that unused exemption can be passed on to their surviving spouse. Well,

(04:23):
portability of unused exemptions between spouses. It's been retained, but
it has been simplified. Now a surviving spouse has ten
years rather than five to elect portabilities. So if your
spouse has died, you now have ten years from the
time of their death to make an election to portability,

(04:47):
which would give you the unused portion of your spouse's
federal estate tax exemption instead of the previous five years.
There's also a safe harbor rule that will allow late
filings in certain hardship cases without the need to get
a private IRS letter ruling. So portability is still there.

(05:11):
Portability simplified, and you have a longer period of time
in which to make that election. Three. Valuation discounts are preserved,
but they have a twist. So what's a valuation discount. Well,
evaluation discount is a strategy where you come in and say, look,

(05:31):
I've got a private I've got a family business, but
I don't own at least fifty percent of the family business,
and so it's not really worth as much in my
state plan because I can't force a sale. So the
idea is that you claim that it's worthless because of
a valuation discount. Well, the bill explicitly protects valuation discounts

(05:58):
for family owned businesses, but limits discounts for passive investment
entities that don't materially operate. So what do I mean? Well,
discounts for lack of marketability and control will still apply
for operating companies, but no discounting shell LLCs or family

(06:21):
limited partners ships that just hold stocks or bonds. So
it's only going to apply to actively operating companies. Four
new compliance tools. Well, now the IRS has new authority
to automatically cross reference gift reporting with annual ten ninety

(06:47):
nine's and other asset transfers. Why because they want to
know if gifts have been made that haven't been reported.
So this is expected to quite frank the increase enforcement
around under reported lifetime gifts. If we look at the idea,

(07:08):
when you make gifts that exceed the annual exemption amount
that we're going to talk about, and you don't want
to pay the gift tax on that, you can defer
the gift tax until you die. But there needs to
be a mechanism for reporting those gifts. And this is
simply going to give the IRS new authority to be

(07:30):
able to cross reference different documentation to try and identify
gifts that have been made and have not been reported
that would impact one's lifetime exemption and or require payment
of a gift tax. Well, okay, so fourth eight summary.

(07:52):
What's changed. Unified credit amount has been doubled to that
currently thirteen million twenty six per couple. Two, portability has
been made simpler. Three valuation discounts have been preserved, but
with a twist, and for there are new compliance tools
that the IRS has to be looking at unreported gifts.

(08:13):
So what hasn't changed, Well, what hasn't changed is the
top tax rate stays at forty percent. So despite debate
and argument in the House and the Senate. The top
of state and gift tax remains at forty percent, So
if you are in the top federal estate and gift

(08:35):
tax area, it's going to be a forty percent tax
on the amount that essentially exceeds at federal state tax exemption.
The annual exclusion is unaffected. What is that. That's a
annual exclusion for gifts that you can make that you
don't have to report, and that don't impact your federal

(08:58):
estate tax exemption. So the annual exclusion for gifts currently
eighteen thousand dollars per done in twenty twenty five, is unchanged.
You can still give this amount each year to as
many people as you want without losing your lifetime exemption.

(09:20):
Three Stepped up basis is still intact, and this is
an important one because there's a lot of discussion about
getting rid of it, but it doesn't touch stepped up
basis at death and what does that mean? Under stepped
up basis, when you die, your heirs the basis and
assets that have appreciated gets reset or stepped up to

(09:45):
the fair market value, which minimizes capital gains taxes when
they later sell it. That's an important one for a
lot of clients, even if they didn't have a federalistate
tax issue, they have assets that have significantly appreciated and

(10:05):
because of step up basis, when the airs receive those assets,
their basis in the asset gets stepped up to the
fair market value, so that when they sell it, they
are minimizing or avoiding potentially totally capital gains taxes that
would otherwise be owed if step up basis wasn't there.

(10:28):
So that helps people, even those who don't have a
federal state tax issue. So again, what hasn't changed. The
top rate stays at forty percent, annual exclusion is going
to be unaffected, and step up basis is still in tact.
So what does this mean for you? Well, if you're
in the high net worth bracket, congratulations, your tax planning

(10:53):
window just expanded dramatically and permanently. If you're in that
high networth brackt and we were talking to you, you're
talking to your tax advisory attorney in the first part
of this year, you were looking saying, Hey, what's going
to happen if the federal state tax exemption amount drops
from thirteen million to seven what's going to happen to

(11:15):
my What are my options, How do I plan for
that because there's things that I need to do by
year end. You don't have to worry about that now
because it's not going to drop. That doesn't mean you
don't have tax planning that needs to be considered, but
your tax planning window. For some of you, it might
mean that you don't have a federal state tax tax

(11:36):
that you have to worry about. For others of you,
it simply means there's a lot more than what's going
to be available by years and for you to pass
on to your loved ones without worrying about a federal
state tax. Now, if you've used things like grats and
family limited partnerships or slats, different planning structures that people

(12:00):
were starting to use in a way to try and
minimize or avoid federalistate taxes, these structures still remain valid,
but new compliance mechanism means that they must be tightly
documented and reported. So if you've used a grant, grant,

(12:22):
our returned annuity trust, or a family limited partnership or
a SLAT as part of your federalistate tax planning, you're
going to want to check with your advisor to make
sure that you are complying with new compliance mechanisms so
that you're not going to have any problem with those
tools that you have already implemented. If you're a business owner, well,

(12:46):
the business owner, think about this. The law favors active
family businesses. That is that discount that I talked about
for valuation purposes, So it favors active family businesses. So
discounts and exemptions are preserved. But always make sure that

(13:08):
your entity, whatever it is, doesn't fall into what is
the passive investment trap. Well that's basically the Samia. Not
a lot has really changed, Okay, which is good. It's
kind of saved what we already had. Make a couple
tweaks here and there, particular when it comes to portability,

(13:32):
which is going to be important for any number of
people and the whole make sure it preserves the family
discount or the valuation discounts for family businesses. Farmers are
going to be happy with that. Business owners are going
to be happy that those were in fact preserved. So

(13:54):
the new estate and gift tax rules under the Big
Beautiful Bill, the bottom line is this, the bill brings
more certainty, higher exceptions, exemptions, I'm sorry, and tighter compliance.

(14:33):
Now if after listening, you're sitting there wondering how the
big beautiful bill unpacks your state plan, or whether you
should be making large gifts us here, please give us
a call, or, better yet, visit DOYLELPC dot com where
you can book in appointment with us. Amanda and I
would be honored to meet with you to discuss the

(14:54):
impact that the federal state tax changes or what stayed
the same effect your estate. We'd also obviously love to
help you protect the people you love, whether that means
creating a brand new estate plan, updating and existing one,
or guiding you through the estate settlement process in a

(15:15):
difficult time. We try and make it easy and convenient
to get started. We have person appointments those are available
in Grand Rapids and Lancing. We have virtual consultations that
can be by zoom or phone, so we can help
you wherever you are in the great state of Michigan.
And then, don't forget we have our legal Store, the
legal stores. You just need one document, maybe all you

(15:39):
need is a new power of attorney for healthcare. Take
a look at the Legal Store browsing, where you can
order individual legal documents anytime twenty four to seven through
our legal store. All of that is available at Doyle
Law PC dot com. Simply visit doilpc dot com. You're

(16:05):
gonna find information on how to do all of those
things so that you can get together with us. Of course,
if you do that, we obviously look forward to the
opportunity to work with you. Well, that's going to be

(16:40):
a wrap for today's show as always. Ooh. If you
have a comment, a question you'd like to have answer,
or a topic you'd like me to cover in a
future episode, head over to Tuesday with Tom dot com.
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(17:02):
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(17:23):
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(17:45):
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thank you again for spending some of your Tuesday with
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and have an awesome day and an awesome week here
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(18:12):
by the estate planning attorneys at Doyle Law PC. To
learn how we can help you with your estate plan
or with settling a loved one's estate, please call us
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