Robert J. Lamm

Robert J. Lamm

“I have returned.”  That’s what Douglas MacArthur declared on October 20, 1944, upon his triumphant return to the Philippines.

It’s been some time since I’ve posted any comments on this blog.  I assure you, it wasn’t out of laziness.  The simple fact of the matter is that there really wasn’t anything out there worth writing about…..until now.  With the passage of the Tax Cuts and Jobs Act of 2017, that has changed.  Like MacArthur, I have returned!!!!!!!

There are big changes with respect to the Federal Estate, Gift, and GST Tax.  This is what you need to know now:

  1. Through 2025, the exemption for Estate, Gift, and the GST doubles.  Under the new law, the exemption is $10 million for a single taxpayer and $20 million for a married couple.  Indexed for inflation, this translates to roughly $11.2 million for a single tax payer and $22.4 million for a married couple.
  2. In 2025, these provisions sunset.  That means the exemption reverts back to $5 million for a single tax payer and $10 million for a married couple.
  3. Treasury is directed to draft regulations to deal with the difference in the exemption amount at the time the gift was made (the $11.2 million per person exemption) and the lower amount that may be in place for transfer tax purposes after the sunset.  The big question is whether the gift is “clawed back” as part of the estate and possibly subject to tax at a later time.
  4. Assets that go through the estate have their basis “stepped up” to their fair market value as of date of death.  This is good because, without this step up, heirs would pay capital gains tax on the sale of property that they inherit equal to the difference between the fair market value of the property and the decedent’s cost basis.

Will the new law really sunset in 2025?  If so, will there be a claw back?   It’s hard to say.  All that one can do is plan with the law that is in place now and right now there are plenty of planning opportunities.  One in particular is the acceleration of lifetime gifts.  It may make sense for some with high value assets to take advantage of the increased exemption and make those transfers now.  Another may be the funding of an irrevocable life insurance trust to hedge against the possibility of a return to a lower exemption.   For others, income tax planning may be more of a concern than estate tax planning and the trust that they have now does not adequately address the ability to receive a basis step up.

These and other topics will be addressed in the months to come.  Stay tuned!