TCJA is the Gift That Keeps on Giving for Wealth Planning – at least until 2026

December 12, 2018

By Karen L.  Goldberg

6 Tips for Seizing the Moment

The wealth planning landscape one year after the enactment of the 2017 Tax Cuts and Jobs Act (TCJA) continues to offer opportunities—if you know where to look.

Exclusion and Exemption Increases Raise Questions

From 2018 through 2025, the gift and estate tax exclusion and generation-skipping transfer tax (GST) exemption have doubled, from $5 million, indexed for inflation, to $10 million, indexed for inflation.  Thus, in 2018, individuals could protect $11.18 million from these taxes and, in 2019, can protect $11.4 million (married couples can protect twice these amounts: $22.36 million in 2018 and $22.8 million in 2019).  Accordingly, clients should carefully review their wills and irrevocable trusts with their advisors to determine the impact of these increases on their current estate plan – not only with an eye for how best to leverage the increases but whether they may trigger unintended consequences.  Thanks to recent IRS guidance, we now know that any of the increased exclusion used for lifetime gifts won’t be clawed back at death, but we don’t know if a potential change in the political landscape will mean that these increases sunset sooner than 2026. 

Will this doubling of the gift and estate tax exclusion and GST exemption affect how and when gifts are made to children and grandchildren? For couples with blended families, this can be an even more pressing issue.  In addition, will clients decide they need less life insurance, or will they seize the opportunity to front-load premiums on existing trust-owned policies?

Opportunities

This doubled gift and estate tax exclusion and GST exemption offers clients a limited window of opportunity through 2025 to reduce their potential gift and estate tax and GST exposure.   Effective ways to use the increased gift tax exclusion and GST exemption include the following:  

  1. Gifting property (preferably high basis assets) anticipated to substantially increase in value to children and grandchildren.
  2. Gifting property that can be discounted for gift tax purposes, but not estate tax purposes, to children and grandchildren.
  3. Using spousal lifetime access trusts (SLATs) for gifts so that couples can retain indirect access to trust assets should a need arise.
  4. Forgiving outstanding family loans or cancelling notes that might exist with a sale to a defective grantor trust.
  5. Pre-funding life insurance trusts.
  6. Allocating GST exemption to pre-existing trusts or possibly at the termination of GRATs that are distributable to GST Trusts.

Use It or Lose It

The increase in the gift and estate tax exclusion and GST exemption is the classic “use it or lose it” scenario because of the 2025 sunset. That, coupled with the high stakes involved and the complex planning strategies available, and it becomes imperative for clients to work with a tax advisor who has deep knowledge and expertise in gift and estate planning.

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About Karen L. Goldberg

Karen L. Goldberg in the Private Wealth Advisory Group leads the trust and estate practice in the New York office. Karen specializes in estate planning for closely held business owners, senior corporate executives and other high net worth individuals.

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