Proposed Tax Legislation May Have Significant Impact on Estate Planning Options | Ballard Spahr srl

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Call your attorney Ballard Spahr to discuss how the proposed legislation might affect your estate. The proposed reforms contain many nuances and uncertainties. The changes affecting transferor trusts could take effect as soon as the legislation is enacted, possibly before the end of 2021. The window of opportunity to take action on transferor trusts could close quickly.

The House Ways and Means Committee recently released a bill that, if passed, would dramatically change estate and gift planning strategies. While more changes are likely to be made during the legislative process, the bill highlights the areas to be targeted, as well as a timeline for when the changes would take effect. Some of the more critical changes are described below. If you would like to discuss how the proposed legislation will affect your estate plan, or if you would like to take advantage of planning opportunities before the December 31, 2021 deadline (and possibly sooner), please contact your Ballard Spahr attorney as soon as possible. possible.

Reduction of federal exemption amounts

Federal inheritance, gift and generational transfer (GST) tax exemptions (the amount that individuals can transfer during their lifetime or upon death tax-free) currently stand at $ 11.7 million. dollars per person, or $ 23.4 million per married couple. This exemption has long been slated to expire on December 31, 2025, falling back to $ 5 million per person, adjusted for inflation. The proposed legislation, if enacted, would speed up the sunset until Dec.31, 2021, leaving individuals about $ 6 million in exemptions after adjusting for inflation, and married couples with about $ 12 million. For those who have not yet used all of their $ 11.7 million in exemptions, time is running out: donations must be made by December 31, 2021, and potentially sooner if the donation is made to a trust (due to potential changes to grantor trusts, noted below).

Grantor’s trusts are no longer favorable

Transferor trusts have long been valuable estate planning tools, and they are now vulnerable to significant income and transfer tax changes under proposed legislation. If the proposed legislation is passed as it is currently drafted, it would severely limit the use and effectiveness of many transferor trusts, including certain life insurance trusts (ILITs), the annuity trusts maintained by the Transferors (FREE), Intentionally Defective Transferor Trusts (IDGTs) and Spousal Lifetime Access Approvals (SLATs). If your estate plan currently includes one of these grantor trusts, or if you are considering donating to a grantor trust to use the remaining exemptions, we encourage you to contact your advisor now. Because changes affecting ceditor trusts may come into effect as soon as the legislation is enacted (potentially before the end of 2021) and may impact cedant trusts prior to the effective date, the window d The opportunity to take action regarding transferor trusts can be quickly closing.

Up-to-date ratings available only for active business entities

The proposed legislation would also eliminate valuation discounts for transfers of interests in entities such as partnerships and limited liability companies that own non-business assets (e.g. cash, stocks, securities). fixed income or real estate not used in the active conduct of a trade or business). This change may apply to transfers made after the date of entry into force of the legislation (potentially before the end of 2021). People with an interest in an entity with non-business assets should move quickly if they want to make gifts for which they would claim a present value due to lack of market value, lack of control, etc.

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There are many nuances and uncertainties in the proposed federal reforms to estates, gifts and trusts. Ballard Spahr’s private client services group is here to navigate and advise on estate planning for those who may be affected by the proposed legislation. If you have any questions about the impact of the proposed changes on you and your estate planning, please contact your Ballard Spahr lawyer as soon as possible.

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