February 17, 2020

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Tax Reform 101 – Estate Planning For High Net Worth Individuals

The new tax bill passed by Congress and signed into law by the President today has increased the amount individuals can transfer free of Gift, Estate and Generation Skipping Transfer (“GST”) taxes.  The law now provides:

  • Beginning in 2018, the Estate/Gift/GST tax exemptions are increased from $5,000,000 to $10,000,000, indexed for inflation (approximately $11,200,000 in 2018).

  • The increased exemptions will expire on December 31, 2025 (i.e., the increased exemptions revert to the current $5 million exemption beginning on January 1, 2026, still indexed for inflation) unless Congress acts to extend them.  The US Department of Treasury and the IRS will prepare regulations to confirm that gifts made during this period up to the increased exemption amounts will not later be subject to tax if the exemptions are reduced.

  • The 40% tax rate for Estate/Gift/GST tax remains the same.

  • The annual Gift tax exclusion will still increase to $15,000 in 2018.

  • The basis adjustment rules, which provide that the basis of any asset passing from a decedent at death will be adjusted to the fair market value of that asset as of the decedent’s date of death (i.e., a step up in basis), remain the same.

The new law presents high net worth individuals with additional gifting and planning opportunities.  Consider taking advantage of the increased exemptions by making gifts up your maximum available exemption amount during this period.  However, you should never give away more than you need to live comfortably, and we note that assets you give away during your life will not receive a basis adjustment at your death (the basis of gifted assets in the hands of the donee is the basis of the transferor at the time the gift is made).

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Partner

Nancy Baldwin Reimann is a partner in the Tax and Estate Planning Practice Group in the firm's Los Angeles office.

Areas of Practice

Ms. Reimann's practice encompasses estate planning, probate and trust administration, and fiduciary litigation.  She creates plans for the transmission of individual wealth, including ways to minimize gift, estate and generation-skipping taxes on the transfer of closely-held business interests and other family assets.  Ms. Reimann also advises fiduciaries regarding the administration of trusts...

213-620-1780
Amy McEvoy, Tax and Estate Lawyer, Sheppard Mullin, Trust and Probate Law
Associate

Amy McEvoy is a partner in the Tax and Estate Planning Practice Group in the firm's Los Angeles office. 

Areas of Practice

Ms. McEvoy is Certified as a Specialist in Estate Planning, Trust and Probate Law by the State Bar of California Board of Legal Specialization.  Ms. McEvoy specializes in all aspects of wealth transfer planning.  She advises U.S. citizens, residents and nonresident noncitizens regarding U.S. estate and gift tax planning with an emphasis on minimizing taxation.  Ms. McEvoy prepares customized complex trusts, both domestic and offshore, as well as comprehensive estate plans.  She also advises fiduciaries in regards to the administration of trusts and estates.

213-617-4159
Associate

Corey Steady is an associate in the Tax, Employee Benefits, and Trust & Estates Practice Group in the firm's Los Angeles office. He works with nonprofit industries. 

 

Practices

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