Estates & Trusts, Asset Protection Planning, Wealth Preservation
Tax, Probate & Guardianships

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Our attorneys work closely with our high-net worth clients by providing proactive planning to assist clients in maximizing the amount of their estate that is passed to their heirs in a tax efficient manner.

On September 13, 2021, the House Ways & Means Committee issued proposed legislation that could significantly change the landscape when it comes to estate tax planning. The proposed legislation would "accelerate" the "sunset" of the increased exemption enacted as part of the Tax Cuts & Jobs Act of 2017. The exemption would go from $10million (indexed for inflation) to $5 million (indexed for inflation). The 2021 exemption is $11.7 million and it is anticipated that it would be approximately $6 million ($12 million for a married couple).

There would also be an increase in the top ordinary tax rate to 39.6% and an expansion of the net investment income tax of 3.8% so that a business owner may have a top tax rate of 43.4%. The legislation would expand the "definition" of NIIT to include earnings from an S Corporation which have historically been used to minimize the amount of self-employment tax that a taxpayer was subject to. This changed coupled with the necessity for an S Corporation to pay "reasonable compensation" to its owner-operators would significantly the benefit of choosing an S Corporation when performing an entity of choice analysis.

Wealth Tax Transfer System

If you are not familiar, the U.S. has both an income tax as well as wealth transfer system. As the name implies, the wealth transfer system taxes the transfer of wealth from one taxpayer to another. There are three components to the wealth tax transfer system: estate, gift and generation skipping transfer tax.

The estate tax transfers bequests at death. Only twenty years ago, the exclusion was $675,000 thus subjecting a significant number of taxpayers to the estate tax. Currently, and as a result of the Tax Cuts & Jobs Act, the exclusion is now $11.7 million but may be reduced shortly as noted above. The increased exclusion was set to "sunset" on 12.31.25 and revert back to the pre-2018 amount of $5 million indexed for inflation. A married couple would have a total $23.4 million of lifetime exclusions. Further, there is the concept of "portability" whereby a deceased spouses unused exemption can be "ported" to the surviving spouse to be used against their estate subject to certain limitations such as remarrying.

The gift tax is unified with the estate tax so that a taxpayer can either use the $11.7 million exclusion for taxable gifts or estate tax purposes. Again, a married couple would be entitled to a $23.4 million exemption. Up to $15,000 of a present interest gift per donee is also excluded. A married couple can gift split by filing the necessary election on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. It should be noted that you are not limited to gifting $15,000.00 per donee. Any amount in excess of that amount would give rise to a taxable gift (or $30,000 if there is gift splitting) that would be used against any unused gift tax exemption. Where there is a reduction of the gift tax exemption due to taxable gifts, that also reduces the amount of the estate tax exemption since it is a unified system. Certain medical payments and tuition can be gift tax free is payment is structured correctly.

Finally, there is the generation skipping transfer tax ("GSTT"). GSTT was enacted as a backstop to prevent a perceived abuse of circumventing the estate tax regime. The GSTT applies to transfers of property where the recipient is two or more generations below the person making the transfer (e.g., grandparent to grandchild).

Please reach out to us to book your free, no obligation consultation to learn how we can help you and your family.

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