December 2017’s huge tax overhaul, the Tax Cuts and Jobs Act (TCJA), changed the estate planning landscape for years to come. What does 2020 have in store? Let’s delve into the latest estate and gift tax opportunities and challenges facing taxpayers.

• Kaestner trust case- North Carolina DOR vs. The Kaestner 1993 Family Trust- The Supreme Court’s decision in this case asserts that a trust beneficiary’s residence alone is not sufficient grounds for a state to tax a trust’s undistributed income. Check out our article for the details: Trust the Due Process: SCOTUS rules on "Kaestner".
  
  The decision serves as a prudent reminder to review the different factors that dictate state taxation of trusts, such as:
  
  - State residence of settlor.
  - State residence of trustee.
  - Location of physical trust assets and custodian of trust assets.
  - Location of trust administration.
  
  Clients should work closely with their tax advisor and estate planning attorney to ensure they are complying with their state tax obligations, and when appropriate,taking advantage of tax planning to reduce state taxes owed by their trust.

• GST Tax Planning- Before potential changes to the generation skipping transfer tax, it’s wise to maximize GST tax planning. Many taxpayers have benefited from shifting value to an irrevocable trust and allocating GST tax exemption to the trust. The value of assets in that GST exempt trust (no matter how much they appreciate) will likely never be subject to the transfer tax. Compounding wealth outside the estate tax system can prove very beneficial. This, coupled with a long term trust allows wealth to compound outside a taxpayers estate indefinitely.
  
  
• Gift tax- The IRS issued proposed regulations on November 20, 2018 to address the lingering concerns of using increased gift tax exemptions on gifts made prior to 2026- commonly referred to as the “claw back”. In 2019, the gift, estate and GST exemptions are $11,400,000 per person. However, the current law will “sunset” on December 31, 2025 and the gift, estate and GST exemptions will revert back to $5,000,000, adjusted for inflation. There was concern that lifetime gifts above $5,000,000 would be includable in the taxable estate of the donor and be subject to a 40% federal estate and GST tax.
  
  However, the new proposed regulations now provide that any gifts which were sheltered due to the use of the increased gift and GST tax exemptions will NOT be included or “Clawed Back” into the estate of the donor at his or her death.
  
• Dynasty trust- Consider “downstream” wealth transfers, rather than upstream. When you move assets to the next generation prior to the death of the senior generation, you escape estate tax on those gifted assets (since the estate tax is designed to impose a tax upon each generation upon their passing).
  
  
• IRA charitable rollover- If you are over 70 ½ and own an individual retirement account (IRA), you can make a gift from your IRA directly to a qualified charity (which includes public charities, not split interest trusts, donor advised funds, private foundations, charitable gift annuities or supporting organizations). You can gift up to $100,000 per year and it qualifies as your required minimum distribution (RMD) for the year. This type of transfer does not generate taxable income or a tax deduction.
  
  
• Required Minimum Distributions (RMDs)- Under the Setting Every Community Up for Retirement Enhancement or SECURE Act (signed into law December 20, 2019), retirees must take their first required minimum distribution (RMD) at age 72 rather than 70 ½. The rule applies only to those who have not reached age 70 ½ by December 31, 2019. If you did turn 70 ½ in 2019, the new law does not apply—you must take an RMD in 2019, 2020 and beyond.

Have the estate tax thresholds changed significantly?

For purposes of this blog, let’s take a look at RI and MA.

Rhode Island Estate Tax. The RI estate tax exemption increased to $1,561,719 for decedents dying on or after January 1, 2019, up from the 2018 threshold of $1,537,656. The maximum estate tax rate remains unchanged at 16%.

Massachusetts Estate Tax. The MA estate tax exemption remains unchanged at $1 million, with a maximum estate tax rate of 16%.

Bear in mind that on January 1, 2026, the increased federal estate, gift, and GST tax exemptions return to their pre-2018 levels (decreasing the exemption amounts to $5.6 million, adjusted for inflation). Make note that wealthy individuals have an opportunity to transfer significant levels of assets to family members and loved ones free of gift and GST taxes by locking in these higher exemptions these next few years.

Questions? Contact any member of our Private Client Services Team.

The TCJA…So Many Changes, So Many Questions…we can help you navigate this huge tax overhaul! Visit our Tax Reform Center for everything you and your business need to know, now.