United States: Transfer Tax Considerations Under The Tax Cuts And Jobs Act

Robert Berselli is an Associate in Holland & Knight's Portland office and Patrick Duffey is an Associate in Holland & Knight's Tampa office


  • The U.S. House of Representatives and Senate ushered H.R. 1, the Tax Cuts and Jobs Act (the Act), through conference committee, and President Donald Trump signed the Act into law on Dec. 22, 2017.
  • Most of the Act's provisions are effective as of Jan. 1, 2018.
  • Because the Act doubles the estate, gift and generation-skipping transfer (GST) tax exemptions, it is important for clients to review their existing estate plans, reconsider current strategies and explore new planning opportunities.


Republicans in Congress passed the Tax Cuts and Jobs Act in just less than two months, achieving sweeping tax reform. Although clients will surely benefit from many modifications to the existing transfer tax regime, those same changes may produce unintended results when applied to estate plans implemented before 2018. The Act was passed in the U.S. Senate along party lines and did not garner the required 60-vote supermajority required by the Byrd provision; therefore, its duration is limited to 10 years. Further, due to budget considerations, a number of the Act's provisions with respect to transfer taxes – including, but not limited to, the increased estate, gift and GST exemptions – are effective only until Dec. 31, 2025. If Congress takes no further action, these provisions will sunset and prior law will be reinstated as of Jan. 1, 2026.

Highlighted below are the key transfer tax provisions of the Act. Additionally, potential revisions that should be made to many clients' core estate planning documents are reviewed and additional planning opportunities that should be considered are summarized.


The Act makes the following modifications to the current transfer tax regime.

  • It doubles the exemption for gift, estate and GST taxes from $5 million to $10 million per person, indexed for inflation occurring after 2011. Though there was a technical change in the index used to calculate inflation, most observers believe that the adjustments will closely match the figure previously announced by the IRS for 2018: $5.6 million per person. Accordingly, as of Jan. 1, 2018, a married couple can likely shield $22.4 million from transfer tax. The change is effective through Dec. 31, 2025.
  • None of the estate, gift or GST taxes are repealed by the Act. The transfer tax regime will continue, but it will apply to fewer estates due to the significantly increased exemption amounts.
  • Taxpayers will continue to receive a full step-up in basis for inherited property included in the decedent's taxable estate.
  • The estate, gift and GST tax rates remain at 40 percent.


The Act presents obstacles and opportunities that must be considered. Headlines trumpet the substantially expanded exemption amounts, but for clients with existing estate plans, the increased exemptions could produce unintended consequences that may result in costly post-death disputes. At the same time, the proposed changes present a once-in-a-generation opportunity to significantly minimize, and potentially eliminate, the impact of transfer taxes. All of this must be approached with the view that tax reform is opening a window, not removing a wall. The transfer tax benefits terminate within eight years. Meanwhile, the U.S. Department of the Treasury has not yet addressed how the scheduled contraction of the exemption amount will be handled. Moreover, if the balance of power shifts in Congress, Democrats may revisit the changes sooner than 2025. Thus, clients should not delay in availing themselves of the Act's many benefits.

Formula Funding Concerns

Many existing estate planning documents include what is known as a "formula funding clause," which divides assets between a "bypass trust" and a "marital trust" upon the death of the first spouse. A formula funding clause can take many forms but often is structured to retain in the bypass trust the "greatest amount that can pass free of federal estate tax," with the balance passing to the marital trust. For clients executing estate plans prior to 2018, they likely intended to fund the bypass trust with the deceased spouse's $5.6 million exemption, with the balance passing to the marital trust.

Given the significantly increased estate tax exemption provided by the Act, if clients take no action to revise existing estate plans, significantly fewer assets will pass to the marital trust in those plans where a formula funding clause has been utilized. As a result, the surviving spouse might receive less than his or her mandatory statutory minimum inheritance, possibly even resulting in the surviving spouse being disinherited entirely. For example, consider a married couple with a combined potential estate of $20 million, with $10 million owned by each spouse. Based upon the new law, this couple can avoid all federal estate taxes due to the increased exemption. If, however, the couple has a pre-2018 estate plan with a formula funding clause, the formula funding clause would direct the deceased spouse's entire $10 million estate to the bypass trust. In this scenario, no amount would pass to the marital trust. This unintended result is reason for significant concern, especially where there are second marriages and/or "blended families."

Deductible Bequests

Clients should consider the purpose and nature of certain deductible bequests in light of the potential changes. Certain techniques – such as "charitable lead" or "charitable remainder" trusts – minimize estate tax by splitting the interests in a trust between charitable and non-charitable beneficiaries. Those techniques often were incorporated into estate plans based on a conscious decision by clients to shift assets that would otherwise have gone to the U.S. Treasury to one or more charities. Clients should revisit such plans and consider whether the size and nature of those bequests are still appropriate, especially in plans where the interests of their heirs might be unnecessarily delayed.

Planning Opportunities

For clients who have already used their lifetime exemptions, the Act presents an incredible opportunity to further advance such wealth planning. Additional planning considerations include the following:

  • Plan Now to Hedge Against the Scheduled Sunset or Potential Repeal of the Act. Since the Act does not repeal the estate tax, ultra-high-net-worth clients should continue to aggressively plan for an estate tax. Even taxpayers with a more "moderate" net worth should consider expanding existing gift planning in the event that the transfer tax exemptions revert to pre-2018 amounts – or lower – in the future.
  • Engage in New Transfer Tax Planning Strategies. Clients whose estates will be subject to estate tax even at the increased exemption amount should take advantage of the expanded exemption in leveraged transactions to maximize their wealth transfers. For example, sales to irrevocable grantor trusts outside of the grantor's estate will continue to be a popular planning mechanism, particularly where there is an opportunity to further leverage the increased exemption amount. Further, because the IRS withdrew the proposed Internal Revenue Code (IRC) Section 2704 Treasury Regulations, additional discounting of the transferred assets may be possible, thereby increasing the efficiency of such wealth transfer techniques.
  • Revisit and Refine Existing Tax Planning. For existing planning transactions that were accomplished with promissory notes of relatively modest value, clients should consider whether is advantageous to use the additional exemption to lower or eliminate the promissory note through a gift. For promissory notes that exceed the available increased exemption amount, it may be beneficial to give additional assets to the purchaser trust to increase that trust's asset base to assist that trust's repayment of the note.
  • Maximize GST Planning. Continued and expanded use of GST exempt trusts for gift-giving should be considered. This strategy can take the form of a current allocation of GST exemption to existing trusts that have not yet received an allocation of GST exemption. Alternatively, the increased exemptions provide an opportunity to further expand the advantages of multi-generational wealth transfer planning. For clients with funded non-GST exempt trusts, there is an opportunity to move assets from the non-exempt GST trust to an exempt GST trust structure. For example, a gift could be made of the increased exemption amount to a new GST exempt trust, and that new trust could then acquire the assets from the old non-GST exempt trust.
  • New Basis Planning Considerations. Clients will be required to balance the use of the increased exemption applicable to gift transactions against the loss of a step-up in basis in transferred assets at death. While this has long been a concern for clients with "borderline" taxable estates, the Act dramatically, albeit temporarily, refocuses that issue. Ultra-high-net-worth clients will need to consider whether it is feasible to use the newly increased exemption amount to give away high-basis assets, while retaining low-basis assets in their estates. The Act's sunset – and potential for early repeal – add to the difficulty of this calculation.
  • Alternative Planning Techniques. Clients should consider alternative uses of the increased exemption, such as forgiving existing loans to family members and terminating unworkable split-dollar life insurance agreements. For example, an economic benefit split-dollar arrangement that has become prohibitively expensive based upon the insured's age may be terminated by using the donor's increased exemption to give away the split-dollar receivable.


The Act significantly lessens the burden of transfer taxes on most families. Ultra-high-net-worth clients that will continue to have a taxable estate with the increased exemption amounts should immediately engage in additional planning to take full advantage of the Act's transfer tax benefits. Even those clients with more modest estates should consider taking swift action to avail themselves of the increased exemption amounts and expanded planning opportunities now available before the Act's transfer tax provisions sunset at the end of 2025.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions