2019 Estate Planning Update Presented By: John M. Harpootian, Esq. Paster & Harpootian, Ltd. 1000 Chapel View Blvd., Suite 220 Cranston, RI 02920 401-455-9800 PH-EstPlan.com John@PH-EstPlan.com

Tax Cuts and Jobs Act (TCJA) 1101 pages of text addressing individual and corporate tax changes ranging from personal and corporate tax rate reductions to the estate and gift tax. Passed on December 20, 2017 without bipartisan support. Signed by President Trump on December 22, 2017. Effective date is January 1, 2018. Most provisions will expire on December 31, 2025. Makes changes effecting every sector of the economy from life insurance carriers, to banks, to big companies, to small companies, to workers, to retirees, to students, to estates.

TCJA Details Corporate Tax Rate 21% Individual Tax Rates: 10%,12%, 22%, 24%, 32%, 35%, 37% Corporate Deemed Repatriation: One time 15.5% on liquid assets and 8% on illiquid foreign assets. Standard Deduction $24,000 married, $12,000 single. Mortgage Interest Deduction Capped for future mortgages at $750,000. Pass-through corporations: 20% deduction, but not for those with income above $415,000 and not for service professionals (except Architects and Life Insurance professionals!).

TCJA: Estate, Gift and GST Details Estate, Gift and Generation-Skipping Transfer Tax Exemption doubled to $10 million (indexed from 2011) through 1/1/25. For 2019 exemption is $11,400,000. Step up in cost basis at death is retained. Tax rate remains at 40%. Many technical corrections need. No likelihood of passage. Provisions sunset on 12/31/25. Sooner?

TCJA: What We Know and What Could Be… Law is “good” through 12/31/20. The 2018 Election resulted in the House being controlled by the Democrats and the Senate being controlled by the Republicans. With divided government, no controversial legislation can pass and become law. 2021 could bring Democrats to power in the White House, the House and the Senate. First order of business: Repeal TCJA? Or at least parts of it?

What To Do Give, Baby, Give! Or, Die Baby, Die! Wealthy clients (Net Worth over $20 million) should consider gifting most of their exemptions now because under Proposed Regulations released 11/20/18 specifically exclude the “claw-back” of exemptions used or claimed made under the TCJA. Translation: “Use It While You’ve Got It!”

How To Use It Outright gifts to children and/or grandchildren Advantages: Simple Disadvantages: Gives “control” to donees and exposes gifts to the claims of creditors (bankruptcy, divorce, tort liabilities, etc.) and GST Non-Exempt. Irrevocable Trusts: Grantor controlled, creditor protected, GST Exempt, Income taxes can continue to be paid by the Grantor creating additional non-taxed gifts to successor generations.

How To Use It (More) Buy Life Insurance through ILIT. Big up front premiums qualify for the usage of Gift Tax and GST exemption. Net result: Death Benefit Tax Free for future and successive generations leveraging the exemption many times over. All assets are creditor protected for children/grandchildren/great-grandchildren. Creates “Family Bank” for generations to come. Tax free money to pay RI or MA Estate Tax.

Spousal Limited Access Trust (“SLAT”) Irrevocable “Grantor” Trust established by a grantor for the benefit of his or her spouse and issue. Completed gift for Gift Tax purposes utilizing the gift tax exemption. Assets of the SLAT are available to the grantor’s spouse if necessary, but are not included in the grantor’s taxable estate nor the spouse’s taxable estate. Distributions to a spouse are limited to income and principal based on an ascertainable standard if the spouse is the trustee, but an Independent Trustee is best. Need to avoid the Reciprocal Trust Doctrine. Can own life insurance.

“Income Retention Trust” For clients that wish to “lock in” the increased exemption, but still need the income. Grantor establishes an irrevocable trust for the benefit of his or her family, but retains the income for life. Transfer $11.4 million to the Trust and file a gift tax return reporting the gift and claiming the gift and GST exemptions. Collect income for life then die. Trust is included in the estate under 2036(a)(1), but the gift value is not under 2001(b). Net result is that only the post-gift appreciation is taxed for estate tax purposes.

GRATs and IDGTs Are Grantor Retained Annuity Trusts needed now? Simplicity may be the rule of the day for the garden variety $30 million estate. Larger estates will continue to use GRATs and sales of assets to Intentionally Defective Grantor Trusts as ways of shifting the appreciation on assets over and above the estate tax exemptions.

2019 Estate Planning Update Presented By: John M. Harpootian, Esq. Paster & Harpootian, Ltd. 1000 Chapel View Blvd., Suite 220 Cranston, RI 02920 401-455-9800 PH-EstPlan.com John@PH-EstPlan.com