Popular Estate Planning Opportunities Remain Available—For Now

1. Reduction in the Unified Credit. The unified credit against estate and gift taxes was proposed to revert to its 2010 level of $5 million per individual, indexed for inflation. It is important to note that this change will occur, absent legislation to the contrary, at the end of 2025. That is, this provision is set to sunset. Currently the unified credit is $12.06 million per person. This credit permits a married couple to give or leave $24.12 million free of gift and estate taxes. This planning opportunity will only be available for a few more years at most, absent new legislation.
2. New Grantor Trust Rules. The House had proposed significant changes for grantor trusts. It was proposed that grantor trusts created on or after the date of enactment of the new law would be includable in the grantor’s taxable estate and sales between a grantor trust and the grantor (or the deemed owner) would be treated the same as sales between the grantor and a third party.
3. Limiting Valuation Discounts. The House proposed that “nonbusiness assets” would not receive valuation discounts for transfer tax purposes.
4. QSBS Limitation for Certain High-Income Individuals. The House proposed that the 75% and 100% exclusion rates for gains realized from Qualified Small Business Stock if taxpayer’s income exceeds $400,000 should be eliminated.

Planning Opportunities—Because these proposals did NOT take effect, there are still many legitimate tax planning strategies available for now. These include, but are not limited to, the following:

1. Planning to maximize the use of one’s $12.06 million unified credit by giving assets to irrevocable trusts up to the unified credit amount. A gift can be structured to be held in trust for many generations into the future, avoiding future gift, estate and GST taxes.
2. The ability to sell assets to an irrevocable trust in an amount greater than the $12.06 million exemption (although subject to certain limitations). This strategy can also avoid gift, estate, and GST taxes for many generations into the future.
3. The ability to transfer certain business interests and receive discounts for lack of marketability and lack of control. This opportunity permits one to give or sell business assets at a significant discount and a substantial tax savings.
4. The ability to give Qualified Small Business Stock to individuals, or separate trusts for their benefit, with each gift of QSBS eligible for a separate QSBS exclusion limit. For example, if a donor gifts QSBS to separate irrevocable trusts for children, then each trust may be eligible for a separate QSBS exclusion limit, in addition to the donor’s personal QSBS exclusion limit.

If you are interested in hearing more about these strategies, we encourage you to contact us sooner rather than later to discuss what strategies may work best for your situation.