Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.


The new tax law makes significant changes to federal tax law and has implications for your existing estate plan. The following is a list of issues to consider when determining whether to update your estate planning documents. 1. Will the new federal tax law change impact my estate plan? The new tax law increases the federal exemption amount from $5,600,000 in 2017 to $11,200,000 in 2018. As a result, there will no longer be any federal tax assessed on estates valued between $5.6 million and $11.2 million. Many estate plans created marital trusts to avoid having to pay any estate taxes on the first spouse’s death. The increase in the federal exemption amount makes those plans obsolete. You should review your existing estate planning documents to ensure your plan will properly operate under the new federal estate tax thresholds. 2. How will the new federal tax law affect my state estate tax? Only individuals living in one of the fifteen states (Minnesota, Iowa, Nebraska, Washington, Oregon, Kentucky, Tennessee, Pennsylvania, New Jersey, Massachusetts, Rhode Island, Connecticut, Delaware, Maryland and the District of Columbia) that still have some form of estate tax will be impacted. It is important to check whether your state of residence links its estate tax exemption limits with the federal limits to avoid an unnecessary tax at death. 3. Should I have my existing estate plan reviewed? Individuals that have not updated their existing estate plans in at least ten (10) years should absolutely have them reviewed to prevent unintended consequences. It is important that your estate plan change with your changing circumstances.


The new Tax Cuts and Jobs Act of 2017 (the “Act”) brings a new savings opportunity for those who desire to put away funds for a child, grandchild or other family members future education expenses. The Act, which went into effect on January 1, 2018, expands the use of 529 Savings Plans (“529 Plan”). A 529 Plan is legally known as “qualified tuition plans,” are sponsored by states or educational institutions and are authorized under Section 529 of the Internal Revenue Code. 529 Plans were designed to encourage saving for future college costs and provide for qualified higher education expenses (tuition, fees, books, supplies, computers and related equipment). 529 plans also have no income, age or annual contribution limits. Although contributions to a 529 Plan are not federal tax deductible, the contributed funds will grow federal income tax-free and will not be taxed when taken out to pay for qualified higher education expenses. The Act now allows for a 529 Plan's payment of qualified education expenses for attendance at an elementary or secondary school. This amount is capped at $10,000 per plan beneficiary per year. It is important to note that assets held in a 529 account owned by a grandparent, other relative or anyone else besides a dependent student or one of their parents will have no adverse impact on the student's ability to apply for federal student aid. However, the withdrawal of funds to pay for the child’s qualified education expenses will count as student income for purposes of their eligibility for federal student aid.


On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (the “Act”) that was passed by Congress on December 20, 2017. The Act will take effect on January 1, 2018 and will make important changes to existing tax laws and impact you. INCOME, ESTATE, GIFT, AND GENERATION-SKIPPING TAXATION: Estate, Gift, and Generation-Skipping Tax Exemption. The Act doubles the individual federal estate, gift, and generation-skipping tax exemptions from $5,000,000, adjusted for inflation ($5.49 million in 2017) to $10,000,000, adjusted for inflation ($11.0 million in 2017). The Act also maintains the basis step-up of inherited assets to their fair market value at death. Income Taxation of Individuals. The Act maintains seven (7) income tax brackets but lowers the income tax rates to 10%, 12%, 22%, 24%, 32%, 35% and 37% from 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The Act also decreases the income threshold to $600,000 for married taxpayers filing jointly and $500,000 for single filers. The new individual tax rates will sunset on December 31, 2025. For comparative purposes, under 2017 federal income tax brackets and rates, a single taxpayer with $40,000 of taxable income would be in the 25% tax bracket and would have a tax liability of $5,739. While under the new 2018 tax brackets and rates, a single taxpayer with $40,000 of taxable income would be in the 22% tax bracket and would have a tax liability of $4,740. Alternative Minimum Tax. The Act also increases the individual exclusions and phase-out thresholds for the individual alternative minimum tax to $1,000,000 for couples and $500,000 for single taxpayers but does not eliminate the alternative minimum tax. Income Taxation of Trusts and Estates. Income in excess of $12,500 will be subject to the 37% income tax bracket. DEDUCTIONS: Standard Deduction: The standard deduction for single and married taxpayers filing separately is increased from $6,350 to $12,000. A surviving spouse and married taxpayers filing jointly will receive a $24,000 deduction (increased from $12,700). The standard deduction for heads of household is increased to $18,000 from $9,350. The Act leaves intact the additional standard deduction for filers who are 65 and over or blind which allows a married couple to claim an additional $2,600 and single taxpayer an additional $1,600 when they file their 2018 taxes. It is anticipated to result in more taxpayers utilizing their standard deduction instead of itemized deductions. Personal Exemption: The $4,050 per person exemption is eliminated. Child Tax Credit: The credit is increased from $1,000 to $2,000 per child with modified adjusted gross income phase outs at $400,000 for married taxpayers filing jointly; and $200,000 for single, head of household and married filing separately taxpayers. However, only up to $1,400 is refundable for certain filers. A new $500 nonrefundable credit is also available for dependents who do not qualify for the child tax credit. Taxpayers can claim this credit for children who are too old for the child tax credit, as well as for non-child dependents. Medical Expense Deduction: The deductible limit is decreased from 10% to 7.5% of adjusted gross income for 2017 and 2018. State and Local Tax Deduction. State income, property, and sales taxes will be deductible for individual taxpayers only up to an aggregate cap of $10,000. This cap will sunset on December 31, 2025. The Act prevents a deduction for the prepayment of any state income taxes related to a year beginning after 2017. Mortgage Interest and Home Equity Loans. The mortgage interest deduction for home loans entered into after December 31, 2017, is decreased from $1,000,000 to $750,000. Mortgage loans entered into prior to January 1, 2018 will not be impacted. While taxpayers will continue to be able to deduct interest on second homes the interest expense deduction is eliminated for home equity loans beginning after December 31, 2017. Charitable Contribution Deduction. The current deduction limitation of 50% of the individual’s adjusted gross income for contributions to public charities is increased to 60%. Existing limits continue to apply to contributions of marketable securities or other property to public charities and to all contributions to private foundations. Alimony Deduction. Under the Act, with regard to divorce or separation agreements executed on or after January 1, 2019, alimony payments will no longer be deductible by the payor or income to the recipient. Moving Expense Deduction. The Act eliminates the moving expense deduction, except for the expenses of active members of the military who relocate pursuant to military orders. Under prior tax law a taxpayer could utilize the deduction when moving due to new employment that is located at least 50 miles further than the taxpayer’s previous place of employment from the taxpayer’s residence. Other Deductions. The following deductions remain status quo under the Act: Educator Expense Deduction which allows K-12 educators to deduct up to $250 per year for unreimbursed classroom supplies; Student Loan Interest paid can be deducted up to $2,500 by qualifying taxpayers; Health Savings Account (HSA) deduction; IRA deduction; and deductions for self-employed taxpayers (SE tax, SE health insurance, SE qualified retirement plan contributions). PENALTIES: The Act eliminates the Affordable Care Act’s mandate that people have health insurance or pay a penalty.


The May 15, 2017, U.S. Supreme Court ruling in Howell v. Howell is a unanimous victory for disabled U.S. veterans. The decision upheld federal law that military disability compensation is not divisible in divorce proceedings. The Court concluded a state court should not be permitted to “subsequently increase, pro rata, the amount the divorced spouse receives each month from the veteran’s retirement pay in order to indemnify the divorced spouse for the loss caused by the veteran’s waiver.” Justice Breyer reversed the Arizona Supreme Court and concluded that under federal law state courts lack the authority to divide up disability benefits and are not permitted to circumvent the restrictions imposed by federal law, by ordering one former spouse to reimburse the other for retirement compensation they no longer receive.


Effective January 1, 2018, the State of Connecticut will require certain pension and annuity payors to withhold Connecticut state income tax from distributions made from an employer retirement plan (pension, annuity, profit-sharing plan, stock bonus, deferred compensation plan, individual retirement arrangement, endowment, or life insurance contract). The withholding requirement applies to public and private entities that (1) maintain an office or transact business in Connecticut and (2) make taxable payments to resident individuals. No change in the law is made for nonresidents.


Federal legislation recently made permanent an individual taxpayer ability to make charitable contributions directly from his or her IRA. These contributions are made directly from the IRA to the public charity are not taxed as income to the taxpayer subject to the following requirements: (i) individual making the contribution must be at least 70 1/2 years of age on the date of the contribution; and (ii) contributions of up to $100,000 per individual per year (or $200,000 for married taxpayers filing a joint return ). Contributions in excess of the $100,000 ($200,000) amount are treated as taxed withdrawals which are then donated to charity. Individuals over age 70 1/2 with traditional IRAs or Roth IRAs will benefit the most if they (1) have already used (either directly or via carry-over) their entire charitable deduction allowed under Section 170 of the Internal Revenue Code during the taxable year; (2) want to make charitable contributions but do not itemize deductions; or (3) have income above the applicable threshold such that deductions under Section 170 of the Internal Revenue Code are not “dollar for dollar” deductions.


You can now add Connecticut, New York and New Jersey to the growing list of states trying to keep its retiring residents from fleeing to states with a lower or no state estate tax bill at death. Effective April 1, 2017, New York state increased their exclusion amount, the amount of property that could pass free of any New York state estate tax, from $1.00 million to $5.25 million. On January 1, 2019, the New York state exclusion amount will increase again and equal the federal exemption amount. Not to be left behind, in the fall of 2017, the states of Connecticut and New Jersey also made significant changes to their state estate tax exemptions. In 2018, the Connecticut estate tax exemption amount will rise from $2 million per person to $2.60 million and will match the federal exemption amount on January 1, 2020. In New Jersey, retroactive to January 1, 2017, the New Jersey estate tax exemption rose from $675,000 per person to $2.00 million. The New Jersey estate tax will be eliminated entirely on January 1, 2018. It is important to note that the New Jersey inheritance tax, a tax levied on inheritances passing to siblings, nieces, nephews and other unrelated individuals, is not impacted by this change in the law. As a result, bequests to certain beneficiaries may still be subject to inheritance tax.


The Internal Revenue Service (“IRS”) announced on October 19, 2017, the following dollar limits applicable to tax-qualified plans for 2018: • The limit on the maximum amount of elective contributions that a person may make to a §401(k) plan, a §403(b) tax-sheltered annuity, or a §457(b) eligible deferred compensation plan is increased from $18,000 to $18,500. • The limit on “catch-up contributions” to a §401(k) plan, a §403(b) tax-sheltered annuity, or a §457(b) eligible deferred compensation plan for persons age 50 and older remains unchanged at $6,000. • The dollar limit on the maximum permissible allocation under a defined contribution plan is increased from $54,000 to $55,000. • The maximum annual benefit under a defined benefit plan is increased from $215,000 to $220,000. • The maximum amount of annual compensation that may be taken into account on behalf of any participant under a qualified plan will go from $270,000 to $275,000. • The dollar amount used to identify “highly compensated employees” remains unchanged at $120,000.


Effective October 2, 2017, new rules go into effect for federally backed HECM (Home Equity Conversion Mortgage) reverse mortgages. The good news is that the new rules will only impact new borrowers. A reverse mortgage allows an individual over age 62 to borrow against the equity in their home without being required to pay back the loan until they either move, sell the property or die. For many seniors, a reverse mortgage provides them a means to generate funds in retirement. The new rules will increase the upfront cost of the reverse mortgage to 2.0% (it previously was 0.5% for those receiving less than 60% of their home equity and 2.5% for those borrowing more than 60%). The new rule will also decrease the annual premium from 1.25% to 0.5% of the outstanding mortgage balance. The amount that may be borrowed will remain linked to the age of the borrower and prevailing interest rate. At current interest rates, the average borrower is able to borrow approximately 58% of the value of the home, down from 64%. The new rules are necessitated by the continuing deficits in the federal reverse mortgage program.


For most, the release of the Consumer Price Index by the Department of Labor goes unnoticed. However, this information allows for the prediction of the 2018 estate, gift, and generation-skipping transfer tax amounts. Estate Tax Exemption – Under current federal tax law, a U.S. citizen may pass tax-free (by gift or at their death) the total sum of $5,490,000 to their heirs and beneficiaries (excluding their spouse). This amount is projected to increase to $5,600,000 in 2018. As a result, in 2018 a couple (U.S. citizens) will be able to collectively transfer $11,200,000.00 without incurring a federal estate or gift tax. This amount will also be applicable to gifts made to grandchildren and future generations (the generation-skipping transfer tax (GST)). Annual Gift Tax Exclusion –A U.S. citizen is entitled to gift a sum certain each year to an unlimited number of individuals (the “annual gift tax exclusion”) without any tax consequences. In 2018, the annual gift tax exclusion amount is projected to increase from $14,000 to $15,000 per individual recipient. The exclusion amount for gifts to a spouse who is not a U.S. citizen (the so-called “super-annual exclusion”) is also projected to increase from $149,000 to $152,000.