Where Do We Stand Six Months Later?

Alright, so it's been a while since I last posted;  things have been busy.  But, it's summer now and I have more time.  So, let's jump right in.

Last December, we estate planners got what we had long been waiting for - new estate tax legislation (if only for two years.)  Back then, there was a lot of speculation regarding how this new law would change everyday estate planning for people.  So, with that in mind, I thought it might be interesting to reflect back on the last six months to see what, if anything, has changed in my practice.

Here we go:

1.  People are making taxable gifts to use up more of their additional $4,000,000 ($8,000,000 for a married couple) exemption from the federal gift tax.  As most of you know, the new law increased the amount that can be given away during lifetime by a person without paying gift tax from $1,000,000 to $5,000,000.  Because it is almost always better to transfer assets during lifetime rather than waiting until death, some clients are taking the plunge and making taxable gifts.  The number clients of making taxable gifts (or at least considering taxable gifts) is significantly more than the last couple of years.  But, it's not like everyone is doing it either.

One reason why it takes a little "courage" so to speak for those of us lucky enough to live in TN is that TN has its own separate gift tax.  And, if a married couple decided to make an $8,000,000 gift, they would owe some $700,000 or so of TN gift tax (and that's a fair amount of change!).  There are ways to potentially avoid this TN tax (like finding some non-TN assets to give away), but it requires some planning.

2.  Planning for couples with retirement accounts is a little easier.  More and more often, my clients' single biggest asset is a retirement account.  Planning with a retirement account is extremely complex for married couples.  In the past, to take advantage of both spouses' exemption from the estate tax, you often had to leave the retirement account to the bypass trust, which is fraught with peril.

The new tax act has brought us portability, though, and it is no longer (at least for the next two years) necessary to create a bypass trust at the first death (subject, of course, to all necessary disclaimers).  This makes funding the bypass trust a non-issue and this type of planning much easier.

3.  More Bypass Trusts for TN Amount.  With the higher federal exemptions, fewer people need sophisticated federal estate tax planning.  But, the exemption from the TN inheritance tax is still only $1,000,000 and there is no portability.  Accordingly, it is still necessary for many married couples to establish a bypass trust at the first death to take advantage of both spouses' exemptions from the TN inheritance tax.

4.  More of the Same.  With the exception of the above, for the most part, nothing much has changed.  For wealthy taxpayers, GRATs (and other estate freezes) and valuation still are the most important transfer tax issues we deal with on a day-to-day basis.

That is my update for today.  More to come, I promise . . .