December 18, 2018
The Tax Cuts and Jobs Act (the “Act”), passed in December 2017, introduced significant changes to the tax system, including doubling the gift, estate and generation-skipping transfer tax exemptions for 2018. As 2018 draws to a close, it may be prudent to consider the following opportunities before year-end:
- Lifetime exemption gifts: For 2018, the lifetime exemption from gift, estate and generation-skipping transfer tax exemptions were increased to $11,180,000 and will further increase to $11,400,000 in 2019. This increased exemption is scheduled to sunset on December 31, 2025. Moreover, concerns regarding the potential “claw back” of amounts gifted between 2018 and 2025 for those individuals who die after 2026 have been assuaged by proposed regulations that were issued by the IRS on November 20, 2018.
Consider utilizing the increased exemption to reduce estate taxes, particularly if you live in a state, like New York, which has a state level estate tax with an exemption amount significantly lower than the federal exemption and without the possibility of portability to the surviving spouse. Furthermore, while valuation discounts remain available and interest rates remain low, a number of effective techniques are available for transferring significant wealth to the next generation with minimal gift tax consequences.
- Annual exclusion gifts / front-load 529s: Consider making annual exclusion gifts on or before December 31. You can make such gifts up to $15,000 (or $30,000 for married couples who agree to “split” gifts) to an unlimited number of recipients without generating any gift tax or using up any gift tax exemption. Also note that 529 college savings plans can be "front-loaded" with five years' worth of annual exclusion gifts.
- Charitable gifts: Consider making cash gifts to public charities where the adjusted gross income (AGI) limit has increased from 50% to 60%. Note, however, that the increased 60% limitation will not apply if, in the same year, any cash gifts are made to non-public charities, such as private foundations or donor advised funds and/or if any non-cash gifts are made to charities, whether public or private.
- Distributions from non-grantor trusts: Trustees of non-grantor trusts should consider making distributions by year-end (or within the first 65 days of 2019) to trust beneficiaries who are in lower income tax brackets and/or who live in states with low rates or no state income tax.
- Review your plan: Estate planning documents (including wills, revocable trusts and disability documents), insurance and investment portfolios and beneficiary designations should be reviewed to determine whether they remain current, and whether the appointment of fiduciaries and agents remain appropriate. In light of the increased exemption amounts, any "formula clauses" in documents (which commonly divide an estate according to tax formulas and exemption amounts), should be reviewed carefully to ensure that the results are still appropriate.