By RANDY RATLIFF
“Sonny, it’s business. Not personal.”
Most of us remember The Godfather and that classic piece of counsel from Tom Hagen to the hot-headed Sonny. While separating “business” from “personal” may have been a worthy approach for the Corleones, estate planning professionals know otherwise.
The truth is that effective, strategic estate planning solutions are the result of a very personal process. And in today’s environment, the business of estate planning is more personal than ever before.
The 2017 Tax Cuts and Jobs Act has marked a real paradigm shift from estate tax planning toward lifetime planning. With the increase in transfer tax exemption amounts, there is a significant opportunity to help clients mitigate estate tax liabilities by gifting wealth outright to beneficiaries or to a trust for the benefit of future generations. However, since the increase in the exemption amounts for federal estate, gift, and GST tax are temporary, estate planners should consider taking advantage of these opportunities before they sunset on January 1, 2026. Some lawyers have been very concerned that the IRS would simply “claw back” gifts into the taxable estate if they exceed the exemption once 2017 Tax Cuts and Jobs Act expires. The IRS has proposed regulations that give us pretty clear guidance. If a person utilizes all of the existing exemption and the exemption falls on 1/1/26 as it is scheduled to do, there will be no claw back. As a consequence, it appears we are in a “use it or lose it” situation and should consider using as much of the exemption as makes sense.
A question that remains open is what happens if someone makes a taxable gift using up only some of their current exemption (e.g., $1 million)? If the exemption falls back to $5 million indexed for inflation, will the client have only $4 million plus the inflation adjustment available, or will the IRS treat the $1 million as not reducing the $5 million exemption? At this point, no one knows.
With 2018 winding down, now is the ideal time to connect with your clients and let them know of these gifting opportunities. Get to know the family and their priorities. What kind of legacy does your client want to create and be known for? What are your client’s views on personal responsibility, life issues, family values, and stewardship?
By capturing the essence of the family’s personality, creative solutions can be found to meet your client’s unique estate planning needs. It takes time and a lot of careful listening, but the rewards for your client—and for you—will make it all worthwhile.
Next month, I’m talking to CPA Heather Jeffrey about how the Tax Cuts and Jobs Act will impact another family issue: alimony.