Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, January 28, 2020

The Annual Gift Tax Exclusion: The Power of Early Gifting

Taxes2Many clients may be scrambling at the end of the year when it comes to certain tax related issues. But when it comes to annual gifting, acting earlier in the year may be more beneficial for a couple of reasons. The current annual gift tax exclusion amount is $15,000 per donee per individual, meaning a married couple may gift a single donee $30,000 with no gift tax consequences.

If you gift an asset with appreciation potential, such as stock or investment property, to an individual or trust, you are able to remove the appreciation and income from your tax base for the year of the gift as well as the following years. You also allow the recipient to benefit from the growth of the gift for the rest of that year.

However, the benefit to you of annual tax free gifts comes at the cost of the recipient receiving the asset with your cost basis. You may need to consider the recipient's tax liability for the gift. Annual exclusion gifting is most advantageous for individuals and married couples who expect to have a taxable estate for federal or state estate tax purposes, and with the passage of the Tax Cuts and Jobs Act in 2017, the threshold has more than doubled.

See The Annual Gift Tax Exclusion: The Power of Early, Wealth.NorthernTrust, January 2020.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

January 28, 2020 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Thursday, January 2, 2020

Estate Planning New Year’s Resolutions: Resolve To Plan Better

NYE2020Many people are determined to abide by their New Year's resolution, whether it be working out, sticking to a diet, or generally being a better person. But there is one resolution that person should stick to - plan better for the future.

  • Resolve to plan before the election. If the Democratic party gains enough traction, whether it be in the Senate or in the Oval Office, a severe estate tax bill may be coming. Meet with an estate planning professional to make sure your assets are safe, just in case
  • Resolve not to repeat the biggest 2012 planning mistake. In the last year of uncertainty, many people transferred large assets into irrevocable trusts and then immediately had a decent amount of remorse. There are other tools that estate planners possess that can get assets out of your estate that will not cause buyer's remorse.
  • Resolve to evaluate all existing life insurance trusts. Currently, the annual exclusion gift amount is $15,000 per donee, but depending on the election results, that may change to $20,000 per donor. If the $20,000 cap is enacted, you might have difficulty funding your life insurance premiums by gifts to the trust. 
  • Resolve to review appreciated assets inside every grantor revocable trust. Given the run-up in the stock market over the past decade, if you have not recently reviewed appreciated assets inside your trust, you should to avoid your estate obtaining a step-up in the income basis of those assets.
  • Resolve to review tax reimbursement clauses (or not) in your revocable grantor trusts.
  • Resolve to talk to your entire planning team about the secure act.
  • Resolve to fund your trusts.
  • Resolve to revise your documents, including power of attorney.

See Martin Shenkman, Estate Planning New Year’s Resolutions: Resolve To Plan Better, Forbes, January 1, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

January 2, 2020 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Income Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Friday, December 20, 2019

Tax Update: The Impact of Newly Published Regulations on the Estate and Gift Tax Laws

TcjaIt has been two years since the passage of the Tax Cuts and Jobs Act (TCJA), and the Department of the Treasury is still publishing regulations to clarify the impact of the new law on the estate and gift tax rules. The newest regulations were provided last month and they may effect your current estate plan.

From the 2018 to now, the annual gift tax exemption amount has stayed the same at $15,000, or $30,000 for couples. The estate tax exemption has been increased to $11,580,000 (or $23,160,000 for a married couple) in 2020 due to inflation. This amount is set to sunset, or expire, on January 1, 2026 and revert back to TCJA numbers. The November regulations clarified that assets transferred or gifted before the sunsetting of the Increase Exemption Amount will be sheltered from estate tax once the amount is lowered back to the Basic Exemption Amount. The regulations also confirm that in general, a taxpayer’s gift is deemed to be made first from his or her Basic Exclusion Amount, and second, from his or her Increased Exemption Amount.

Another question was presented, dealing with the deceased spousal unused exemption (DSUE). Under certain circumstances, a decreased spouse can transfer their unused exemption amount to their surviving spouse. The regulations confirmed that though the living spouse's exemption amount will revert back to the pre-TCJA amount, the transferred DSUE of a spouse who passed away before January 1, 2026 will not revert back to the lower amount.

See Alexia M. Fishman, Tax Update: The Impact of Newly Published Regulations on the Estate and Gift Tax Laws, Cozen O'Connor, December 16, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

December 20, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Trusts, Wills | Permalink | Comments (1)

Tuesday, December 10, 2019

Final Regulations Confirm No Clawback on Gifting

TcjaThe increase in the estate tax exemption amount under the Tax Cuts and Jobs Acts (TCJA) is set to "sunset" or expire on December 31, 2025, and many advisors are encouraging their high net worth clients to make large gifts before that date as to "use up" the exemption amount. Some advisors were concerned that such gifting would trigger an additional transfer tax when the exemption reverted back to pre-TCJA amounts, allowing the Internal Revenue Service to "claw back" any used amount over the exemption rate at the time of the taxpayer's death.

On November 22, 2019, the IRS issued final regulations confirming that used gift tax exemption will not be “clawed back” upon the person’s death, even if they made gifts in excess of the estate tax exemption ultimately in effect at the time of death. Also, a surviving spouse who received unused estate tax exemption from a predeceased spouse — referred to as the Deceased Spousal Unused Exemption (“DSUE”) — can utilize the DSUE amount during lifetime or at death without fear of a clawback or loss of the DSUE.

Tax laws can change with every year and every election, but with the 2020 presidential election looming and the possibility of a shift in the dynamic of Congress, a reduction in gift and estate tax exemptions could take place prior to the end of 2025. Wealthy taxpayers should not wait until December of 2025 to make large gifts to make the most of the increased exemption amounts.

See Dickinson Wright, Final Regulations Confirm No Clawback on Gifting, Lexology, December 9, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

December 10, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation | Permalink | Comments (0)

Sunday, November 24, 2019

When it Comes to Gifting, There's No Time Like the Present

GiftOften, allowing your loved ones to have gifts before your death can have tremendous benefits, not least of all watching them enjoying the presents during your lifetime. If you have an estate that is more than the federal exemption amount which, as of 2019, is $11.4 million, giving away assets before you pass can lower any estate taxes due. Any amount lower than $15,000 per year is tax-free, and an be used as an effective way to gradually help children and grandchildren understand and appreciate their family’s wealth.

From a tax perspective, a downside of gifting assets during your lifetime is that assets that have appreciated in value do not receive a “step-up” income tax basis. This means if you gift appreciated property or securities, the recipient will be subject to capital gains tax on the built-in appreciation when they sell the assets. It is important to consider when to gift these types of assets so that the loved one can receive the greatest benefit, rather than a possible burden.

There are numerous other vehicles that can be utilized to gift children and grandchildren assets or even funds during ones lifetime, including:

  • 529 College Savings Plans, which acts similar to a retirement account in that the money placed in it grows without being subject to federal income tax.
  • Uniform Transfer to Minor Act accounts, and any property placed in the trust are taxes at the child's tax bracket
  • Delaware Dynasty Trusts, which are notorious (or famous, however you choose to look at it) for lasting in perpetuity.

See When it Comes to Gifting, There's No Time Like the Present, Franklin Templeton, November 18, 2019.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

November 24, 2019 in Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Tuesday, November 19, 2019

Estate and Gift Tax Exclusions Increase to $11.58 Million in 2020

IrsThe Internal Revenue Service (IRS) announced on November 6th the 2020 inflation adjustments for several tax items including the estate and gift tax exclusions and standard deductions. The current individual estate tax exclusion amount is $11.4 million, but for a person that passes away in 2020, the amount has increased by $180,000 to $11.58 million. The 2020 exclusion amount for married couples is twice that at $23.16 million. Taxpayers who are considering substantial lifetime gifts must “use or lose” the additional exemption before it reverts back to pre-2018 amounts in 2026.

One item that did not change is the annual gift tax exclusion, which is to remain at the 2019 amount of $15,000. But the annual gift tax exclusion amount for a US citizen to gift their non-citizen spouse increased by $3,000 to $157,000. If both spouses are citizens, there is no limit, and the gifts are excluded from federal estate and gift tax.

Also, the IRS increased the standard deduction to $12,400 for individual taxpayers and married taxpayers filing separate returns and to $24,800 for married taxpayers filing jointly. For heads of households, the standard deduction will increase to $18,650.

See Estate and Gift Tax Exclusions Increase to $11.58 Million in 2020, Hodgson Russ, November 18, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

November 19, 2019 in Current Affairs, Current Events, Estate Planning - Generally, Estate Tax, Gift Tax | Permalink | Comments (0)

Wednesday, November 13, 2019

CLE on Current Developments in Estate and Tax Planning 2019

ALI CLE and ACTEC are conducting a webcast entitled Current Developments in Estate and Tax Planning 2019 on Thursday, December 5, 2019 at 12:00 p.m. to 1:30 p.m. Provided below is a description of the event.

Why You Should Attend

Do you want to provide your estate planning clients with the best possible advice going into the new year? Are you up-to-date on the most significant developments to have come out of 2019? Set aside just 90 minutes to gain valuable insights on emerging trends in estate and tax planning, and learn how the newest cases, IRS guidance, and proposed regulations will impact your practice and your clients’ estate plans.

What You Will Learn

The faculty, all Fellows of The American College of Trust and Estate Counsel and highly-experienced estate and tax planning practitioners, anticipate discussing:

• Inflation adjustments
• IRS Priority Guidance Plan
• Court decisions of significance, including: Kress, Jones, Dieringer, Kaestner / Fielding
• Presidential candidate proposals
• SECURE Act
• Anti-clawback regulations
• Estate and gift tax proposed legislation
• Uniform basis PLRs
• PLR on §1041 & grantor trusts
• Regulations on 170 SALT limitation workaround
• IRS Chief Counsel Advice on high/low trading prices

Additional breaking topics may be added as we get closer to the date of the program.

All registrants will receive a set of downloadable course materials to accompany the program.

Who Should Attend

Estate planners and other related professionals will benefit from this CLE on estate and tax planning developments jointly offered by the ALI CLE and ACTEC.

November 13, 2019 in Conferences & CLE, Current Events, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Cases, New Legislation, Trusts, Wills | Permalink | Comments (0)

Thursday, October 3, 2019

CLE on 45th Annual Trust and Estate Conference at USC Gould School of Law

CLEThe University of Southern California Gould School of Law is holding a conference entitled, 45th Annual Trust and Estate Conference, on Friday, November 22, 2019 at The Westin Bonaventure Hotel in Los Angeles, California. Provided below is a description of the event.

why attend?

High-Quality Education

For over 40 years, USC Gould’s Trust and Estate Conference has provided high-quality continuing education customized for trust, estate planning, probate and elder law professionals.

Practical and Realistic Solutions

The Conference has a proven track record of teaching practical and realistic solutions to everyday and unexpected problems in estate planning, trust administration, probate, trust and estate litigation, elder law and client relationships. Speakers often share “howto” techniques and forms used in their practices.

Unrivaled Networking

Over 500 of your peers registered for the Conference last year for an unrivaled networking and learning opportunity from both the speakers and your professional colleagues.

who should attend?

The Conference is specially tailored for trust, estate planning, probate and elder law professionals including attorneys, paralegals, trust officers, accountants, financial institution executives, private professional fiduciaries, wealth management professionals, fiduciary officers, underwriters and insurance advisors.

what’s included?

Registration includes all sessions, continental breakfast, networking breaks, luncheon presentation, continuing education credit, and print and downloadable copies of the practical Conference Syllabus including the popular Resource Guide, a Trust and Estate Professional Directory covering Los Angeles, Orange and San Diego counties.

Free WiFi and an Event App will also be available for attendees at the Conference!

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

October 3, 2019 in Conferences & CLE, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, New Cases, New Legislation, Non-Probate Assets, Trusts, Wills | Permalink | Comments (0)

Sunday, September 29, 2019

Old Estate Plans May be Harmful to Your Health

WillThe main reason that many people do not update their estate plan or will is because they believe that "nothing has changed" in their lives. The passing of time may seem monotonous, but it is still unlikely that an event has not occurred that alters some aspect of your life, no matter how small. Even if you still do not believe that anything has overtly changed in your realm, the tax laws may have still changed. If you have not looked at your estate plan since the 2017 Tax Cuts and Job Act overhaul, you may be shocked to see that "everything" may have changed.

Here are a few other things that may trigger a change in your estate plan, even if you did not think so on the face:

  • Marriage, either yours or an heir/beneficiary
  • Death of an heir/beneficiary or other person named in documents
  • Birth/adoption of a new child or grandchild
  • Move to a new state
  • Significant change in economic situation
  • Change in jobs (make bring changes in beneficiary designations)
  • Change in wishes
  • Health issues that are new, worsening or even getting better
  • Change in relationship with anyone named in documents
  • New lawsuit or resolution of a lawsuit
  • Change in life insurance policies
  • Change in state laws that could effect any aspect of your estate plan

See Martin Shenkman, Old Estate Plans May be Harmful to Your Health, Forbes, September 27, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

September 29, 2019 in Current Affairs, Disability Planning - Property Management, Estate Administration, Estate Planning - Generally, Estate Tax, Gift Tax, New Legislation, Trusts, Wills | Permalink | Comments (0)

Wednesday, September 25, 2019

Inflation Adjusted 2020 Figures Announced

IrsThe Internal Revenue Service has announced the inflation adjustments for the estate and gift tax exclusion, the generation-skipping transfer tax exemption, the gift tax exclusion and other estate planning rates for 2020.

  • The federal estate and gift tax exclusion amounts will increase by $180,000, from $11.4 million to $11.58 million.
  • The generation-skipping transfer (GST) tax exemption will also going to be $11,580,000.
  • The annual gift tax exclusion will remain the same at $15,000 per donor per donee per calendar year.
  • Trust and estate income tax rate brackets have also been released.
    • If income is less than $2,600, the tax is 10% of taxable income.
    • If income is over $2,600 but not over $9,450, the tax is $260 plus 24% of what is over $2,600.
    • If income is over $9,450 but not over $12,950, the tax is $1904 plus 35% of what is over $9,450.
    • The highest bracket comes in at amounts over $12,950, in which the tax is $3,129 plus 37% of the excess over $12,950.

See James V. Roberts, Inflation Adjusted 2020 Figures Announced, JamesVRoberts.com, September 25, 2019.

September 25, 2019 in Current Affairs, Estate Administration, Estate Planning - Generally, Estate Tax, Generation-Skipping Transfer Tax, Gift Tax, Income Tax, Trusts | Permalink | Comments (2)