By Anthony Diosdi
This year may be a very busy year for estate and gift tax planning professionals. This is because this year is somewhat reminiscent of 2012. In 2012, the Economic Growth and Tax Relief Reconciliation Act of 2001 was scheduled to expire. The Economic Growth and Tax Relief Reconciliation Act excluded $5,120,000 from estate and gift taxes, and the generation-skipping transfer taxes (“GST”). The expiration of the Economic Growth and Tax Relief Reconciliation Act would have resulted in the tax exemption for estate and gift taxes, and the GST reverting back to only $1 million. Any estates valued over $1 million could have been subject to estate and/or gift tax of up to 55 percent. Fortunately for many American families, President Obama signed the American Taxpayer Relief Act of 2012 on January 2, 2013, retroactive to December 31, 2012. The American Taxpayer Relief Act which made the laws pertaining to the estate and gift tax, and GST and the $5,120,000 exemption tax (indexed for inflation) permanent.
The Tax Cut and Jobs Act of 2017, the current law, signed by President Trump on December 22, 2017, essentially doubled the transfer tax exemptions from $5 million to $10 million, indexed for inflation. However, many of the provisions of the Tax Cut and Jobs Act of 2017 are scheduled to expire on December 31, 2025. This means that on January 1, 2026, the estate and gift tax, and the GST exemption will revert back to $5.6 million. On October 19, 2017, the IRS announced that the estate and gift tax and GST exemption 2018 indexed amount is $5.6 million. See Rev. Proc. 2017-58.
In November of this year, there will be a presidential election. There will also be elections in the Senate and House of Representatives. Depending on the outcome of such elections, it is possible that the estate and gift tax, and GST exemption could revert to the 2018 amount before the 2025 calendar year. To add to the uncertainty, should a number of liberal candidates win elects, the estate, gift, and GST exemption could be even lower than $5.6 million.
Because of the potential changes to the estate, gift, and GST tax laws, individuals who have a net worth in excess of the $5.6 million (the 2018 exemption for individuals), and married couples who have a net worth in excess of two times the 2018 exemption, or $11.2 million, should consider estate and gift tax planning techniques. Some estate and gift and GST planning techniques that could be considered are: 1) dynasty trusts; 2) spousal lifetime access trusts (“SLATs”); 3) inter vivos qualified terminable interest property trusts (“inter vivos QTIP trusts”); 4) self-settled domestic asset protection trusts; and 5) general power of appointment trusts. The planning technique that will be best suited for any particular individual will depend on the facts and circumstances of that particular individual.
Anthony Diosdi is a partner and attorney at Diosdi Ching & Liu, LLP, located in San Francisco, California. Diosdi Ching & Liu, LLP also has offices in Pleasanton, California and Fort Lauderdale, Florida. Anthony Diosdi advises clients in tax matters domestically and internationally throughout the United States, Asia, Europe, Australia, Canada, and South America. Anthony Diosdi may be reached at (415) 318-3990 or by email: adiosdi@sftaxcounsel.com.
This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.