Question about discussion of a proposed law or regulation

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LITeacher
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Question about discussion of a proposed law or regulation

Post by LITeacher »

My question is specific to the proposed Estate Tax and Gift Tax changes that may occur in the near future. There seems to be a high probability that something will change with estate taxes and gift taxes by January 1, 2022. Many of the articles suggest that people start planning now for this if they have very large estates to maximize any exemptions they can before the law goes into effect.

I know that it is against board rules to discuss proposed laws or regulations. However, would it still be inappropriate to ask forum members about what could be done, in terms of estate planning and gift planning, right now to ensure an optimal outcome for any potential future decrease in tax exemptions for both estates and gifts (regardless of which changes get enacted)?
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LadyGeek
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Re: Question about discussion of a proposed law or regulation

Post by LadyGeek »

Sorry, no. There are too many unknowns to give accurate advice. At issue is that you are working with your life's savings, or a large dollar amount is involved. Making the wrong decision based on inaccurate advice can be very costly. This is why we don't permit discussions until the legislation is signed into law.

The discussion best held in-person with someone who is qualified to address your situation. There will be no misunderstanding of intent. If the decision was incorrect, you know what happened.
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MathWizard
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Re: Question about discussion of a proposed law or regulation

Post by MathWizard »

You do not have to talk about future legislation, you could just ask what can be done under current
law.

Utilizing the $15K/yr per person gift exemption is the most useful way.

If you are married and have 2 kids with spouses
Each of you could give $15K per person each year.

This means $30K between the two of you to 4 people
child 1
child 1's spouse
child 2
child 2's spouse

You can also give to charity at any time, so no need to do anything now.

I would only do this if you have way more than you will ever need.

For me, I'd have to be north of $30 million to even consider this, but
I will never have this "problem" unless drastic changes occur, and
I don't worry about my kids they will do fine regardless.
Last edited by MathWizard on Thu Apr 08, 2021 10:56 am, edited 1 time in total.
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LadyGeek
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Re: Question about discussion of a proposed law or regulation

Post by LadyGeek »

^^^ That's a good approach.
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jpelder
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Re: Question about discussion of a proposed law or regulation

Post by jpelder »

I think the only thing we can talk about is how to reduce estate and gift tax liability in general. Definitely not anything related to things that are not yet law. Remember that pundits have been predicting for years various changes to tax law (usually increased marginal rates) that have not come to pass. All estate tax changes are in the form of rhetoric now, not even proposed bills, so making any decisions based on that would be speculative.

On the other hand, current law does have the estate tax exemption changing from $11.7 million per person to $5 million per person in 2026. Making plans to reduce your estate tax liability through some means (irrevocable trusts? I don't know...) before 2026 may be prudent. Or just be sure to die in December 2025 :beer You may dislike that final plan for personal reasons, though.
MathWizard
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Re: Question about discussion of a proposed law or regulation

Post by MathWizard »

jpelder wrote: Thu Apr 08, 2021 11:09 am I think the only thing we can talk about is how to reduce estate and gift tax liability in general. Definitely not anything related to things that are not yet law. Remember that pundits have been predicting for years various changes to tax law (usually increased marginal rates) that have not come to pass. All estate tax changes are in the form of rhetoric now, not even proposed bills, so making any decisions based on that would be speculative.

On the other hand, current law does have the estate tax exemption changing from $11.7 million per person to $5 million per person in 2026. Making plans to reduce your estate tax liability through some means (irrevocable trusts? I don't know...) before 2026 may be prudent. Or just be sure to die in December 2025 :beer You may dislike that final plan for personal reasons, though.
Thanks for reminding us all of the sunsetting of the 2018 law where the exemption snaps back to $5 million.

Still not a problem for me, but $5 million would affect more people on this board than the current limit.
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LITeacher
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Re: Question about discussion of a proposed law or regulation

Post by LITeacher »

jpelder wrote: Thu Apr 08, 2021 11:09 am I think the only thing we can talk about is how to reduce estate and gift tax liability in general. Definitely not anything related to things that are not yet law. Remember that pundits have been predicting for years various changes to tax law (usually increased marginal rates) that have not come to pass. All estate tax changes are in the form of rhetoric now, not even proposed bills, so making any decisions based on that would be speculative.

On the other hand, current law does have the estate tax exemption changing from $11.7 million per person to $5 million per person in 2026. Making plans to reduce your estate tax liability through some means (irrevocable trusts? I don't know...) before 2026 may be prudent. Or just be sure to die in December 2025 :beer You may dislike that final plan for personal reasons, though.
That makes sense. When they say 11.7 million per person, when would that even apply? Would both mother and father have to pass at the exact same time for that to happen? Or do the accounts have to be non-joint accounts?
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Re: Question about discussion of a proposed law or regulation

Post by jpelder »

LITeacher wrote: Thu Apr 08, 2021 11:31 am
jpelder wrote: Thu Apr 08, 2021 11:09 am I think the only thing we can talk about is how to reduce estate and gift tax liability in general. Definitely not anything related to things that are not yet law. Remember that pundits have been predicting for years various changes to tax law (usually increased marginal rates) that have not come to pass. All estate tax changes are in the form of rhetoric now, not even proposed bills, so making any decisions based on that would be speculative.

On the other hand, current law does have the estate tax exemption changing from $11.7 million per person to $5 million per person in 2026. Making plans to reduce your estate tax liability through some means (irrevocable trusts? I don't know...) before 2026 may be prudent. Or just be sure to die in December 2025 :beer You may dislike that final plan for personal reasons, though.
That makes sense. When they say 11.7 million per person, when would that even apply? Would both mother and father have to pass at the exact same time for that to happen? Or do the accounts have to be non-joint accounts?
Not sure. I just did some cursory Googling. IIRC, though, it would apply if the 1st spouse to die splits the inheritance between the surviving spouse and the children. Otherwise, yeah, it's $11.7 for the whole estate once the surviving spouse also dies.
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Re: Question about discussion of a proposed law or regulation

Post by Gill »

LITeacher wrote: Thu Apr 08, 2021 11:31 am That makes sense. When they say 11.7 million per person, when would that even apply? Would both mother and father have to pass at the exact same time for that to happen? Or do the accounts have to be non-joint accounts?
It would apply with the use of trusts to take advantage of each spouse's exemption and pass that amount to children or other beneficiaries.
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Re: Question about discussion of a proposed law or regulation

Post by Katietsu »

jpelder wrote: Thu Apr 08, 2021 11:36 am
LITeacher wrote: Thu Apr 08, 2021 11:31 am
jpelder wrote: Thu Apr 08, 2021 11:09 am I think the only thing we can talk about is how to reduce estate and gift tax liability in general. Definitely not anything related to things that are not yet law. Remember that pundits have been predicting for years various changes to tax law (usually increased marginal rates) that have not come to pass. All estate tax changes are in the form of rhetoric now, not even proposed bills, so making any decisions based on that would be speculative.

On the other hand, current law does have the estate tax exemption changing from $11.7 million per person to $5 million per person in 2026. Making plans to reduce your estate tax liability through some means (irrevocable trusts? I don't know...) before 2026 may be prudent. Or just be sure to die in December 2025 :beer You may dislike that final plan for personal reasons, though.
That makes sense. When they say 11.7 million per person, when would that even apply? Would both mother and father have to pass at the exact same time for that to happen? Or do the accounts have to be non-joint accounts?
Not sure. I just did some cursory Googling. IIRC, though, it would apply if the 1st spouse to die splits the inheritance between the surviving spouse and the children. Otherwise, yeah, it's $11.7 for the whole estate once the surviving spouse also dies.
I am not sure exactly what your understanding is of the estate law as is. Are you familiar with portability? Portability allows a surviving spouse the ability to transfer the deceased spouse's unused exemption amount for estate and gifts taxes to a surviving spouse, so long as the Portability election is made on a timely filed federal estate tax return (IRS Form 706). In this way, the surviving spouse may have an exemption of about $23 million without simultaneously passing away. If portability remains and the exemption goes back to $5 million a person in 2025, the flexibility from portability will become relevant to more people. The surviving spouse would be allowed an exemption of $10 million, their own $5 million plus the $ million from the portability election for the deceased spouse.
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Re: Question about discussion of a proposed law or regulation

Post by gobel »

LITeacher wrote: Thu Apr 08, 2021 10:44 am Many of the articles suggest that people start planning now for this if they have very large estates to maximize any exemptions they can before the law goes into effect.
To clarify some other responses, the exemption drops back to 1/2 in 2026 but that will be adjusted for 8 years of inflation so it will be over 6m by then, not 5m.

If you want to take max advantage of the doubled exemption, you have to give away the max amount before it drops. That's an extra tax savings of about $2.3m (per individual) compared to waiting till 2026.

But if you want to just give 1m now and use up some of the "extra" TCJA exemption, it doesn't work that way. After it drops, it will count as you having used up 1m of the new lower limit.

I'm not sure about ported exemptions, eg if one spouse dies today and the other spouse invokes portability of the entire 11.7m amount: does the 5.8m extra exemption from the deceased also disappear in 2026? (my guess is no, it is saved, so other spouse still has a total of 11.7 + their own individual limit)
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Re: Question about discussion of a proposed law or regulation

Post by senex »

LITeacher wrote: Thu Apr 08, 2021 11:31 am That makes sense. When they say 11.7 million per person, when would that even apply? Would both mother and father have to pass at the exact same time for that to happen? Or do the accounts have to be non-joint accounts?
Estate tax is always per-person. When person XYZ dies, you add up everything owned by XYZ. That is his "estate." That number, minus the amount left to spouse, minus 11.7M (currently) is the taxable portion. "Everything owned by XYZ" means everything in his name alone, plus his share of any jointly titled assets (often 50%, but not always).

If Mom & Dad have $20m split evenly, and both die this year, maybe they pay $0 tax, maybe they pay millions, depending on their plan. Some common ones:

1) First to die leaves all to spouse. No tax due. Spouse dies, leaves all to kids. About $3M estate tax due (20M - 11.7M)*(approx 0.4).

2) Same as above, but surviving spouse remembers to file estate tax portability within 9 months of first death. When survivor dies, no tax due (because own exemption plus ported exemption is 23.4M).

3) First to die leaves his estate ($10m) into a properly designed trust. No tax due. Spouse dies. No tax due.

Item 1 is obviously suboptimal. Items 2 & 3 look similar, but can diverge if surviving spouse lives long enough for her net worth to grow.
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Re: Question about discussion of a proposed law or regulation

Post by bsteiner »

You could take advantage of the current exclusion amount by giving away $11.7 million now. A married couple could give away $23.4 million now.

Under the law as it's now in effect, the exclusion amount is scheduled to drop by 50% in 2026. However, there's no clawback if you give away the exclusion amount currently available.

If you can't give away that much, but you're concerned about estate taxes, a smaller gift will get out of your estate the income and growth on the gift during your lifetime. If the trust to which you make the gift is a grantor trust for income tax purposes, so that you pay the tax on the trust's income and gains, your payment of the income tax will shift additional wealth out of your estate.

If your estate is large enough that the estate tax is a concern, you may want to consult with competent trusts and estates counsel.
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LITeacher
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Re: Question about discussion of a proposed law or regulation

Post by LITeacher »

gobel wrote: Thu Apr 08, 2021 12:35 pm
LITeacher wrote: Thu Apr 08, 2021 10:44 am Many of the articles suggest that people start planning now for this if they have very large estates to maximize any exemptions they can before the law goes into effect.
But if you want to just give 1m now and use up some of the "extra" TCJA exemption, it doesn't work that way. After it drops, it will count as you having used up 1m of the new lower limit.
My more specific question was whether I could gift OVER 1 million, let's say, and then if the exemption drops, I will not be penalized for gifting over whatever the new exemption.
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Re: Question about discussion of a proposed law or regulation

Post by gobel »

LITeacher wrote: Thu Apr 08, 2021 3:42 pm
gobel wrote: Thu Apr 08, 2021 12:35 pm
LITeacher wrote: Thu Apr 08, 2021 10:44 am Many of the articles suggest that people start planning now for this if they have very large estates to maximize any exemptions they can before the law goes into effect.
But if you want to just give 1m now and use up some of the "extra" TCJA exemption, it doesn't work that way. After it drops, it will count as you having used up 1m of the new lower limit.
My more specific question was whether I could gift OVER 1 million, let's say, and then if the exemption drops, I will not be penalized for gifting over whatever the new exemption.
I do believe I have read interpretations to that effect. Eg.

Gift 11m now, it drops to 6m, you have 0 exemption left but are not penalized on the addl 5m.

But if you only gift 5m now, and it drops to 6m, then you will have only 1m left. (The point being, gifting anything below the eventual new cap doesn't take advantage of the current high cap)
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