Before They’re Gone—Estate Planning Strategies

Estate planning strategies
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If you have not already been inundated with invitations to webinars, articles and newsletters regarding the estate planning you should consider doing before new legislation passes, you undoubtedly will receive these over the next few months.

As Congress continues to hammer out the details on impending legislation, certain laws still affect estate planning. The article “Last Call for SLATs, GTRATs, and the Use of the Enhanced Gift Tax Exemption?” from Mondaq says now is the time to review and update your estate plan, just in case any beneficial strategies may disappear by year’s end.

Here are the top five estate planning items to consider:

Expect Exemptions to Take a Dive. Estate, gift, and generation-skipping transfer tax exemptions are $11.7 million per person and are now scheduled to increase by an inflationary indexed amount through 2025. Even if there are no legislative changes, on January 1, 2026, this number drops to $5 million, indexed for inflation. Under the proposed legislation, it will revert to $6,020,000 and be indexed for inflation. This is a “use it or lose it” exemption.

Married Couples Have Options Different Than Solos. Married persons who don’t want to gift large amounts to descendants have the option to give the exemption amount to their spouse using a SLAT—Spousal Lifetime Access Trust. The spouses can both create these trusts for each other, but the IRS is watching, so you must take certain precautions. The trusts should not be identical and should not be created simultaneously to avoid applying the “reciprocal trust” doctrine, which would render both trusts moot. Under the proposed legislation, SLATs will be included in your estate at death, but SLATs created and funded before the legislation will be grandfathered in. If this is something of interest, don’t delay.

GRATs and other Grantor Trusts Maybe Gone. They won’t be of any use since proposed legislation has them includable in your estate at death. Existing GRATs and other grantor trusts will be grandfathered in from the new rules. Again, if this is of interest, the time to act is now.

IRA Rules May Change. People who own Individual Retirement Accounts with values above $10 million, combined with an income of more than $450,000, may not be able to contribute to traditional IRAs, Roth IRAs, and defined contribution plans under the proposed legislation. Individuals with large IRA balances may be required to withdraw funds from retirement plans, regardless of age. A minimum distribution may be equal to 50% of the amount by which the combined IRA value is higher than the $10 million thresholds.

Rules Change for Singles Too. A single person who doesn’t want to make a significant gift and lose control and access may create and gift an exemption amount to a trust in a jurisdiction with “domestic asset protection trust” legislation and still be a beneficiary of such a trust. You must fully fund this trust before the new legislation is enacted since once the law passes, such a trust will be includable in the person’s estate. Check with your estate planning attorney to see if your state allows this strategy.

Reference: Mondaq (September 24. 2021) “Last Call for SLATs, GTRATs, and the Use of the Enhanced Gift Tax Exemption?”