New Estate Planning Opportunities


AS YOU PROBABLY KNOW, THE TAX CUTS AND JOBS ACT WAS PASSED IN LATE 2017 (THE “ACT”). The Act, among other things, temporarily increased the amount that an individual could give away during life or at death without paying “transfer taxes”. The new amount is $11.18 million per person, indexed to inflation and known as their “exemption”. As a result of the Act’s high exemption and recent IRS guidance, there are a couple of unique planning opportunities I would like to share with you.

First, the Act’s high exemption provides a chance for certain individuals whose parents are still living to take advantage of their parents’ potentially wasted exemption (known as “upstream” planning).

As a simple example, children can gift an appreciated asset “upstream” to their parents. At the parent’s death, they pass the asset back to the child or to a trust for the child’s benefit (or younger generations), but with a new, higher basis. Of course, we would want to structure the gift in a way to protect the child, the asset, and the overall plan. This could mean structuring the gift in a way to protect the asset from creditors and future tax law changes.

An “upstream” trust can be combined with other tried-and-true estate
planning methods so that the child can transfer assets in such a way that future appreciation occurs in the parent’s estate, without completely losing the benefit of the asset (such as a stock portfolio).

Please note this “upstream” technique may be advisable even if the child falls under the high exemptions, as these are temporary and subject to Congressional changes. The key is a trusted family member of a higher generation who is still living.

Second, in addition to these “upstream” planning opportunities, the Act’s increased exemptions gives us a good opportunity to examine existing irrevocable trusts (perhaps left by deceased parents or other ancestors) and determine if a modification is possible to obtain this desirable basis adjustment. Florida (and most states) permits limited modification to otherwise irrevocable trusts due to changes in circumstances. An eleven million dollar exemption would certainly be an example of a change in circumstances.

Last but not least, we can use gifting to “lock in” these temporarily increased exemptions. For those people who have considered gifting to kids and beyond, now is a good time to have an in-depth discussion about the available options.

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