Estate Planning Update

July, 2018

  1. 2018 Annual Gift Tax Exemption: increased to $15,000 (from $14,000) per donor, per donee.
  2. 2018 Gift and Estate Tax Exemption: $11,180,000 per donor through 2025, see below.
  3. Marital Deduction for Transfers to U.S. Spouse: unlimited.
  4. 2018 Generation Skipping Tax Exemption: $11,180,000 per donor through 2025, see below.
  5. Top rate for Federal Estate, Gift and Generation Skipping Taxes: 40%.
  6. 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 or $10,000,000 for a married couple. Now, under the current law for estates of decedents dying and gifts made in 2018 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 $11,180,000 and a married couple $22,360.000 from estate and gift taxes.
  7. Arizona Topics: This legislature was active this spring and the Governor signed two bills that impact my practice. The first is 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.  More on this topic in coming months.  The second is House Bill 2471 which is a new law validating electronic wills under certain circumstances.  Videotaping the signing and third party storage of the electronic document are going to be hurdles to widespread implementation, so I am not recommending that anyone rely on it in the near future.
  8. Estate 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.
  9. Business Planning Opportunities: 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 thinking about.
  10. Quinn News: I was a featured presenter at the 2018 Arizona State Bar Convention on the estate planning aspects of the new LLC act. Nothing like speaking to a couple hundred lawyers about changes in the law, so I was ready for a vacation. See you soon. Q.