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April 16, 2018

Time for a Review of Your Estate Plan

Please read important disclosures HERE.

Many of us will face some form of intergenerational family money or property conflict during our lifetime. Changes in tax laws often serve as a good reminder to review your estate plan and make sure your plan still meets your wishes and is written to minimize potential disagreements among family members when you die.

The Tax Cuts and Jobs Act of 2017, which went into effect January 1, 2018, did not repeal the estate, gift, or generation-skipping transfer tax laws but instead doubled the basic exclusion amount (the maximum amount that can be transferred free of estate, gift, and generation-skipping transfer taxes during lifetime or at death). For 2018, the basic exclusion amount for an individual is now $11.2 million. However, the new exclusion amounts “sunset” (or cease to have effect) on January 1, 2026, at which time, barring legislative action, the basic exclusion amounts will revert to $5.0 million per individual (with inflation adjustments).

If you have not reviewed your estate plan in the last few years, now is a good time to do so. As you look over your estate plan, you may wish to give consideration to the following:

General updates on non-tax provisions: Family members and financial situations are forever changing. As such, non-tax planning considerations that need to be reviewed periodically include protecting beneficiaries from themselves (against undue influence or loss of capacity), from creditor claims, or from spouses (divorced or not); ensuring you have selected appropriate fiduciaries; and addressing how digital assets will be handled.

Maximizing income tax opportunities: Under federal income tax laws, a capital gains tax still remains. When assets are transferred to a traditional bypass trust when the first spouse dies, those assets receive one step-up in basis for capital gains purposes but no further step-up in basis occurs upon the subsequent death of the surviving spouse. The tax laws now provide several techniques to insure a second step-up in basis when the surviving spouse dies without incurring negative federal estate tax consequences.

Reviewing formula bequests: Under the terms of some wills or trusts, gifts of assets with a value equal to the deceased person’s “estate tax exemption amount” occur upon death. Given the doubling of the gift and estate exemption amount, these formula type provisions should be carefully reviewed to make certain the designated transfer amounts are not too high and are in alignment with your wishes.

Additional taxable gifts: With the substantially increased exemption amount, now is a good time to consider making additional gifts of securities and real properties, giving interests in family businesses, and forgiving loans. When the increased exemption amounts sunset, the higher gift exemption opportunities will be lost. In addition, gifts that are reported during this period that are in excess of future lower exemption amounts are expected to be grandfathered and though still not certain, the legislation directs the Treasury Department to prescribe regulations on any tax “clawback” possibilities.

Family installment sales: Even under the new tax laws, the existing rules on valuation discounts and using transactions that include closely held entities remain in place. Interest rates are still below historical norms and this is a good time to implement leveraged sales to family members or to trusts for their benefit.

During these next eight years of significant estate and gift tax exemption amount increases, many impactful estate planning opportunities exist for those who are interested. You can contact your B|O|S advisor, your estate planning attorney, or your accountant to discuss these strategies in more detail.

Please read important estate planning disclosures here.

Filed under: Financial Planning

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