With the increased exemption amounts for 2020, clients’ initial reaction might be that there is less need for estate planning or trusts. So NOT true.
Clients enter the estate planning process and create trusts to CONTROL wealth. Reducing taxes is often a distant secondary reason. While the increase in the exemption amount is a boost to high net worth individuals, the tax law still doesn’t eliminate these common client concerns:
- “I love my new son-in-law, but…”
- “My daughter is 42-years-old and has a history of drug abuse. The last thing she needs is an outright distribution of my wealth.”
- “Our bank trustee sold significant assets in our trust portfolio. Now the trust has to pay huge capital gains taxes. Why weren’t we informed of this? Why didn’t they consult us?”
- “My grand-child is special needs. What can we do to help her?”
- “Since I retired 10 years ago, I have volunteered at the local children’s hospital. The time I spend there and my work there means the world to me. How can I support this organization when I can no longer physically do this job?”
- “Our son is going through a divorce. We have been cut-off from seeing our grandchildren. We want to fund a college savings plan for each of them but we don’t want money to go to our former daughter-in-law.”
- “My husband and I are now 82-years-old. We’ve amassed significant wealth over our lifetimes. But now my children are fighting with us support them and give them money. We want them to earn their own money and support themselves.”
- “My child has autism.”
- “My current trustee doesn’t speak to us and ignores our calls. Is he allowed to get away with this?”
Clients with these and similar concerns/issues need solutions and ideas. For most individuals, these issues are more important than saving on taxes, rates of return, wild market movements and fees.
New Planning Opportunities?
Any tax changes create new estate planning challenges and things to consider for high net worth clients:
- Consider taking advantage of the increased gift tax exemption amount and possibly the GST tax exemption amount by making gifts to children and/or grandchildren either outright or to new or existing trusts; now might be an ideal time to establish Dynasty Trusts, which allow substantial amounts of wealth to grow and compound free of federal gift, estate and GST taxes; it’s better to give now while the law is certain – remember there is a sunset provision in the new Act that could reduce the new loftier exemptions.
- Review the terms of Wills and Revocable Trusts to ensure they remain in accordance with the original planning objectives; many Wills and Revocable Trusts create trusts that will be funded according to formula clauses tied to the exemption amount in effect on your date of death; with this amount set for 2020 at $11,580,000 per individual, the funding amount may be significantly more than what was anticipating.
- Make “catch-up” contributions to irrevocable trusts that were originally used established to reduce future estate tax burdens; for example, if a client funded with an irrevocable trust with $5 million a couple years ago, he/she may want to consider funding the difference to today’s new maximum exemption amount (the trust will have to allow for additional contributions).
- Grantor Retained Annuity Trusts (GRATs) may be less necessary; for high net worth clients who may have used GRATs extensively in their planning in the past, the larger exemption amounts will permit simpler one-time transfers to irrevocable trusts without the need for the leveraging GRATs provide; this will simplify planning as leakage of annuity payments back into the estate will prove unnecessary; for some high net worth clients, stopping a rolling GRAT plan in favor of a simpler completed gift to an irrevocable trust may prove more advantageous to simply remove assets from their estate.
- Life insurance to pay an estate taxes may be less relevant for high net worth clients, at least until/if the exemption drops back to a lower amount.
- Check state estate and/or inheritance tax implications; some states have their own form of death taxes which may or may not be tied to the federal estate tax exemption; additional planning and focus may be needed here for clients when working with their estate planning attorney and/or CPA.
- Make annual gifts; the annual gift tax exemption will remain $15,000 ($30,000 for a married couples); this could help individuals make significantly gifts to Crummey trusts or outright.
First State Trust Company welcomes the opportunity to work with you and your professional partners to ensure your planning is exactly as you desire.
For more information, please contact:
Jacqueline Jenkins, CTFA
Chief Fiduciary Officer / Managing Director
Phone: 561-515-6156 / Email: email@example.com
The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only.