Estate Planning Still Necessary in Light of Proposed Legislation

By now, many individuals have become familiar with the highlights of the GOP’s proposed tax bill recently passed. This article will focus only on the proposed changes with respect to the estate, generation skipping, and gift taxes. Since the initial discussion of the bill, we have heard extremely misguided feedback that President Trump is repealing the estate tax, and thus no more planning is required.

That opinion is incorrect for several reasons. First, it is important to remember that the Republican plan is simply a proposal. Many people believe this proposed bill passed by the House of Representatives simply requires a rubber stamp of approval, which is far from the truth. It is very possible that the final version of any tax law will bear little resemblance to the current proposal. Although the estate tax will not be repealed, the exemption amount would double under the Senate bill. While it will be a huge challenge for Republican leaders to corral 50 Senators to vote for tax reform legislation and to resolve differences between the House and Senate proposals, momentum for tax reform is still strong. It is possible that tax reform legislation could pass by the end of 2017, or early 2018, with a 2018 effective date.

Second, many people misunderstand the House bill as the immediate elimination of both the estate tax and generation skipping tax (GST). However, these taxes will not be immediately repealed, but instead will no longer apply after 2024 (six years into the future). Until then, the estate tax exemption would double to an inflation-adjusted $10 million, from the current $5 million inflation-adjusted amount that for 2018 is already set to be $5.6 million for each individual. In addition, after 2023, the top gift tax rate would be lowered to 35 percent.

Third, by the time the estate tax would be fully eliminated in 2024 under the proposed plan, a new administration would be coming in with the potential for additional changes. This includes the possibility of eliminating family discounts once again. Fourth, income tax planning is also very important when dealing with long-term generational planning. A defective grantor trust is an effective planning tool by freezing estate assets and allowing for tax-free growth inside the trust.

Fifth, performing long-term asset protection by utilizing trusts, when correctly done, will most likely shield those assets from the beneficiary’s creditors or from a potential divorce. Lastly, individuals need to pay close attention to potential estate and gift tax for the state that they are currently domiciled in since many states’ rules do not mirror the federal law.

In the event the proposed tax bill does or does not pass in its current form and the estate tax is eliminated (in 2024), we still strongly recommend that individuals speak with their tax professionals before year end and review their current family wealth transfer plans. Proper and timely planning, taking advantage of the yearly increasing gift tax exemption, allowed family discounts, effective income tax planning, asset protection, and taking into account their state of domicile is so important to an overall successful family wealth transfer strategy.

Richard S. Bernstein, CEO of Richard S. Bernstein & Associates, Inc., West Palm Beach, is an insurance advisor for high net worth business leaders, families, businesses, municipalities, and charitable organizations. An insurance advisor to many of America’s wealthiest families, he is a writer, trusted local and national media resource and expert speaker on estate planning and health insurance. Visit his website at www.rbernstein.com. To read more of his reports — Click Here Now.

Michael L. Kohner is a Managing Director and a Co-founder of the Professional Services firm of Andersen Tax, in West Palm Beach. He has extensive expertise in serving both high net worth families and closely held businesses with their complex tax issues in the real estate, technology, media, distribution, and venture capital industries. He is also a frequent lecturer and author on topics dealing with federal taxation, family wealth transfer planning, charitable giving, and corporate aviation.