In the wake of the recent tax legislation signed into law by President Trump in December 2017, we are all scrambling to absorb its impact on us as individual tax payers and as business entities. Soon enough, we will be able to determine if Will Rodgers was correct when he said, “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”
A key piece of the 2017 tax legislation relates to the exemptions associated with federal estate taxes. Recently, federal estate, gift and generation-skipping (GST) tax exemptions were $5.6 million per U.S. domiciliary. With the new tax law, the federal estate, gift, and GST exemptions are doubled to $11.2 million per U.S. domiciliary. Notably, as is consistent with most of the provisions of the new law related to individuals, these exemptions “sunset” after 2025. This means that absent a future change by Congress in this part of the tax code, the law will revert to what was in effect for 2017 with certain inflation adjustments. In addition, those preparing estate plans must also consider estate taxes imposed by state governments, including Maryland.
While it hasn’t received a great deal of attention in the general press, the 2017 tax legislation will also have a major impact in the area of family law. For divorce decrees granted and marital separation agreements executed after December 31, 2018, alimony income will no longer be deductible to the donor of alimony nor considered as income to the recipient of alimony. This shift in the tax treatment of alimony under the new law likely will make the negotiation of settlements between a divorcing couple more complicated and potentially more difficult. Under the new tax law, there will be no “sweetener” for a donor-spouse who previously would have received a tax deduction for alimony payments to a former spouse. The loss of this benefit will likely increase the resistance of the donor-spouse to pay alimony to a separated or former spouse.