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Trusts, estates and tax reform

Georgia residents can include trusts in their estate plans to ensure that assets are distributed in a certain way. With the passage of the Tax Cuts and Jobs Act, it is important that individuals who do use trusts are aware of how the trusts can be impacted.

Individuals are able to claim deductions on state and local taxes for up to $10,000. However, there has been some uncertainty about whether the limit is also applicable to estates and trusts. The taxable income for estates and trusts is determined with the same calculation used for an individual in many cases, which would imply that the $10,000 limit is applicable for estates and trusts beginning with the 2018 tax year.

With the tax reform law, estates and trusts may be eligible for a 20 percent deduction under IRC Section. In order to qualify, they will have to have business income that is earned from an S corporation, partnership or a sole proprietorship. The income thresholds that are in place for taxpayers who are not married are also applicable to estates and trusts. The type of trust that is being used will determine if the 199A deduction will be distributed between the estate or trust and the beneficiaries.

The deductibility of specific expenses that are incurred by trusts or estates is another aspect of taxes that was unclear after the tax reform law was passed. While it was understood that the miscellaneous itemized deductions that are subject to the 2 percent AGI limitation could no longer be deducted by trusts or estates, the deductibility of other expenses was not as clear.

An estate planning attorney may assist clients with determining which types of trusts can be used to protect their assets and limit tax liability. Assistance may be provided for drafting the provisions of trusts.

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