Estate Plan Update
- 2018 Annual Gift Tax Exemption: increased to $15,000 (from $14,000) per donor, per donee.
- 2018 Gift and Estate Tax Exemption: $11,200,000 per donor for next 8 years, see below.
- Marital Deduction for Transfers to U.S. Spouse: unlimited.
- 2018 Generation Skipping Tax Exemption: $11,200,000 per donor, see below.
- Top rate for Federal Estate, Gift and Generation Skipping Taxes: 40%.
- National Topics: I was wrong. Somehow the estate tax legislation survived the cutting block and Congress increased the amount of the estate tax exemption with the Tax Cuts and Jobs Act of 2017. Under prior law, the first $5 million (as adjusted for inflation in years after 2011) of transferred property was exempt from estate and gift tax. For estates of decedents dying and gifts made in 2018, this “basic exclusion amount” was $5.6 million ($11.2 million for a married couple). Now, under the current law for estates of decedents dying and gifts made after December 31, 2017 and on or before December 31, 2025, the Act doubles the base estate and gift tax exemption amount from $5 million to $10 million, which when indexed for inflation means an individual can shelter $11.2 million and a married couple $22.4 million from estate and gift taxes.
- Arizona Topics: Not much estate planning legislation worth noting here, other than Senate Bill 1353 which overhauls Arizona’s limited liability company laws. The new law proposes to address a variety of issues currently unresolved, such as fiduciary duties and voting. I participated in the drafting and review the Act and am comfortable with its effect on the most common entity type in Arizona. However, there are provisions that will require amendments to current operating agreements if it passes. More on this if the bill becomes law.
- Planning Opportunities: The new increased exemption amounts provide significant opportunities to pass additional wealth without incurring gift or estate taxes. You don’t want to miss this opportunity to transfer wealth if you can. In addition, for those estate plans with allocation formulas that are exemption dependent (meaning the amount of the gift to persons other than a spouse is tied to the amount of the exemption), then the formula should be reviewed together with your current assets. If you want to review the allocation provision of your trust or explore gifting alternatives available to you, please give us a call.
- Planning Issues to Review: The new income tax rates make C-corporations an attractive alternative for those businesses who use retained earnings of six figures or more to fuel their growth. The concept being that the new corporate income tax rate coupled with a stock sale as an exit strategy will minimize the overall income tax burden during the growth and exit phases. Definitely worth talking with your CPA regarding about converting to a C-corp. if your business is relying retained earnings to fuel growth.
- Quinn News: 2017 was my busiest year ever and we are hopeful that the local and national economy will continue to prosper. We still have capacity for more projects, so please let me know if you, a family member or friend needs legal assistance this year.