Tax Law Updates That Affect Estate Planning
December 9, 2016
By: Ira W. Zlotnick
The recent election of Donald Trump as the 45th President of the United States of America combined with the Republican sweep of both the House of Representatives and the Senate has added a degree of uncertainty to the future of both the U.S. gift and estate tax. Candidate Trump had proposed a full repeal of the U.S. gift and estate tax but there are both political and non-political considerations which may make the repeal of both of these taxes less than a certainty. Even if the repeal of the gift and estate tax were to happen, Candidate Trump also proposed a capital gains tax at death for those transfers at death in excess of $10,000,000 (with certain exemptions for family businesses and farms) which would significantly alter the "stepped-up" basis landscape to which we have grown accustomed.
If these proposals were to be enacted, it is quite possible that trust planning might become more important than ever to avoid the triggering of the capital gains tax at death. In addition, many of our clients will continue to want to create trusts for many other reasons including for asset protection purposes or for succession planning purposes or simply as a hedge against reinstatement of the gift, estate and generation-skipping transfer tax under a future administration. Moreover, trusts will continue to be extremely useful in planning for divorce and in second marriage situations.
Although there is a great deal of uncertainty with respect to the future of the gift and estate tax we believe that clients should continue with their typical year-end planning, including making annual exclusion gifts, paying tuition and medical care costs gift tax free, and possibly using their remaining lifetime exemptions and/or zeroed out GRATs. We will, of course, continue to update our readers as developments occur but you should feel free to reach out to us in the interim.
New Jersey recently passed legislation to repeal the New Jersey estate tax effective January 1, 2018. In addition, for decedent's dying after January 1, 2017 but prior to January 1, 2018, the New Jersey state estate tax exemption is increased from its current level of $675,000 per person to $2,000,000 per person. This legislation dramatically overhauls the state estate tax landscape for New Jersey residents and makes New Jersey one of the most taxpayer friendly states from an estate tax perspective.
While New Jersey repealed its estate tax, it remains one of a handful of states in the U.S. with a separate inheritance tax. The inheritance tax is levied on the transfer of assets to heirs, based on the relationship of the inheritor to the deceased. While the New Jersey inheritance tax does not apply to bequests to spouses and children, it does, for example, apply to bequests to siblings, nieces and nephews and thus should not be overlooked by a New Jersey resident when doing his or her planning especially since the inheritance tax exemption is nominal.
Given the repeal of the New Jersey state estate tax and the continuing application of the New Jersey inheritance tax, we recommend that clients living in New Jersey review their Wills to determine whether the legislation requires any changes thereto.
Effective October 1, 2016, Connecticut enacted the Connecticut Uniform Power of Attorney Act (the "Act") updating the law governing powers of attorney. The Act provides two optional statutory forms (a new statutory short form and a revised statutory long form) each of which includes an updated list of basic powers that are being given to the agent. In addition, the long form includes additional gift giving powers that one can opt to give to his or her agent which could prove extremely useful in certain instances.
In addition, the Act (i) requires that a third party accept powers of attorney in most circumstances and limits when a third party can refuse to accept powers of attorney, (ii) provides that a filing of divorce or a separation action automatically revokes the spouse's agency, and (iii) presumes that the power of attorney remains effective during the principal's incapacity even if the form is silent on this issue.
Although the Act expressly provides that existing powers of attorney remain valid, it may be advisable for Connecticut residents to update their powers of attorney to benefit from the various additional provisions that are spelled out in the Act.