It’s been the question hanging over CPAs, tax professionals and business owners: Will Congress extend the Tax Cuts and Jobs Act (TCJA)?
“This is potentially one the most important things we’ll see in the next couple of years,” says Avery Frank, manager at CLA.
The TCJA significantly increased an individual’s lifetime exclusion amount for gift and estate taxes, and it needs extended to continue its provisions.
“Currently, the figure we’re talking about as the double amount is $13,610,000 that any person may transfer during their lifetime or after to individuals or trusts for the benefit of the folks they care about,” Frank says. “For a married couple, that means they have presently to transfer about $27 million of wealth.”
With the unknown of if and when Congress will act, CLA provides this guidance based on estate size. The viability of certain plans will depend on types of assets you own, their tax attributes and your wealth transfer time horizon, which is why CLA encourages clients to develop a team of advisers to help them.
Two spouses with less than $14 million in net worth estate:
• Fund 529 plans
• Annual giving
• Charitable giving
• Fund a grantor trust
“With these estates, they probably have enough lifetime exclusions to shelter from the estate tax,” he says.
Two spouses with $14 million to $28 million in net worth estate:
“This is definitely an estate size that I would say we need to have a plan in place,” he says. “We need to know what we’re going to do, if certain outcomes come to pass. An estate of this size would realistically have to give up all their assets to be able to shelter their entire estate.”
Some ideas include:
• Gifting without gift splitting
• Life insurance trusts
• Use discountable assets
Two spouses with more than $28 million in net worth estate:
“Once we’ve gone through and done some really good planning using lifetime exemptions to the greatest extent possible, we’re going to turn up the heat,” Frank says. “There’s interesting things that happen for taxpayers of this estate size, and some opportunities they may not normally be comfortable with.”
He gives three tools as examples:
1. Prepaying gift tax, instead of paying estate tax, typically results in a lower amount of tax being paid. Frank gives the perspective that it represents a significant opportunity to reduce future estate tax.
2. For clients with existing grantor trusts, get the trustee of those trusts to generate taxable income. The taxable income created in the grantor trust is taxed back to the grantor.
3. Sell assets to grantor or non-grantor trusts.
“Today is the day. Yesterday would have been better,” Frank says. “Form the team, define the plan. You’re on the clock.”
