By Ashlea Ebeling, Forbes Staff
Link to original article here
The federal tax overhaul just doubled the amount of wealth you can pass to heirs estate-tax-free–without using any trusts or planning gimmicks. Yet rather than looking for a new specialty, top trust lawyers are positively giddy about the opportunities created by the law President Trump signed three days before Christmas.
The letter of the law allows slightly more than $11 million per person to be passed to kids or other noncharitable heirs free of federal gift or estate tax. But by employing aggressive techniques, New Jersey estate lawyer Martin Shenkman figures, a couple could use their combined $22 million tax exemption to transfer more than a quarter-billion of assets into an irrevocable dynasty trust, where that wealth can continue to grow and pass, estate-tax-free, to an unlimited number of future generations. “This is phenomenal. The numbers are beyond comprehension,” says Shenkman. Is this legally risky? Less so than it used to be. In October, Trump’s Treasury withdrew proposed Obama-era regulations cracking down on certain of these aggressive techniques, which, when done right, have been upheld by the courts.
Adding to the planners’ excitement: The new tax law, with its complexity, hasty drafting and last-minute giveaways, creates new opportunities to use trusts and gifting to reduce income taxes, too.
Plus, there’s all the less-cutting-edge–but, if it’s your family, high-priority–legal work the tax changes will generate. Affluent folks should have old trust plans reviewed for booby traps as soon as possible, because they may need to redo or scrap them. Ditto those living in 15 states that impose estate and/or inheritance taxes at much lower levels of wealth than the feds.
One all-too-common trap: a will that establishes a trust linked to an outdated federal and/or state exemption amount. Say a New Yorker has assets in his own name of $11 million. His current will, the one he had drawn up in 2011, when the federal estate-tax exemption was raised to $5 million, leaves the “exemption amount” in a trust for his kids from his first marriage and the rest to his current wife. But if he drops dead now, the kids’ trust would get everything and his wife zip. And since New York exempts only $5.25 million from its own estate tax, accidentally leaving the full $11 million to the kids will incur a $1,226,800 state estate-tax bill. (Amounts left to a citizen spouse are exempt from both federal and state estate taxes.)
“The good news is that these unintended consequences can be fixed,” says Donald Hamburg, a New York City estate lawyer.
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