Due to not just the approaching US election but also continued economic uncertainty and a country that is dealing with the impact of the coronavirus pandemic, family gifting is likely not at the top of your list of goals. Despite its uncertainty, the current situation creates an opportunity for individuals with the appropriate types of assets to save on transfer taxes. This window of opportunity, however, will not last forever. The current $11.58 million per individual transfer tax exemption is scheduled to be reduced to $6 million on January 1, 2026. This decrease, however, could potentially be much sooner than 2026 based on who wins the US Presidential election. As a result, this article reviews some important factors that you should consider about making gifts that make the most of tax exemptions given the current state of these exemptions.
Trusts Are A Powerful Way to Transfer Assets
Passing gifts through trust allows a person to separate the timing of gifting from issues related to distribution. Additionally, placing assets in a trust also offers creditor protection which is not available if a person makes an outright gift to a beneficiary. If desired, a trust can give beneficiaries substantial control over assets consistent with those associated with enhanced creditor protection. Trusts can also be structured with transfers to them are viewed as gifts for either estate or gift tax purposes, which also allow the person transferring them to remain the owner of the property for income tax purposes. A person’s ability to pay income taxes on behalf of the trusts is then not classified as an additional gift.
By passing assets to a trust now, you can avoid taxes, but there might be lingering concerns about your ability to access gifted funds at any point in the future. To avoid this undesirable situation, you can name your spouse as a beneficiary of an irrevocable trust. These “spousal lifetime access trusts” provide the advantage of permitting spouses to access benefits as a spouse.
Remember the Act Doubled Standard Deduction
The previous standard duction was almost doubled due to the Tax Cuts and Jobs Act and grew from $6,500 to $12,000 for individual filers and from $13,000 to $24,000 for joint filers. By making these standards larger, the value of itemized deductions is less. As a result, it is now more advantageous for tax filers to take the standard deduction instead of itemizing deductions. As a result of this change, the Joint Committee on Taxation estimates that the number of itemized filers will decrease from 46.5 million in 2017 to around 18 million in 2018.
Revise Your Estate Plan
If you have not revised your estate plan since the Tax Cuts and Jobs Act was passed, it is still a good idea to examine whether your estate plan needs to be revised in light of these changes. While it might be possible to still establish complex estate planning strategies to protect assets, you should be aware that tax provision from the act is only temporary and that there is no guarantee that estate tax levels will remain at the current level for this time. Also, remember that federal tax laws do not provide state protection, which is why it is good for your estate plan to consider any applicable state taxes as well.
Obtain the Services of a Knowledgeable Estate Planning Attorney
To make sure that you have the estate plan possible, it can help greatly to retain the assistance of an experienced estate planning attorney. Do not hesitate to schedule a free case evaluation today by contacting Ettinger Law Firm.