1. Enlarged Estate Tax ExemptionThe 2017 tax reform legislation roughly doubled the transfer tax exemption to $11.4 million per individual, or $22.8 million per married couple, as adjusted for inflation in 2019 (the 2018 exemption was $11.18 million per person). (Photo: Shutterstock)
2. IRS Confirms: No Clawback for Post-Reform Transfer Tax ExemptionFor transfer tax purposes, the IRS has released guidance confirming that clients will be allowed to make large gifts from 2018-2025 (when the expanded $11.4 million-per-person transfer tax exemption is in place) without fear of any kind of “clawback” if the client dies in a later year, when the exemption is lower. (Photo: Shutterstock)
3. Inheriting an IRAIf a client inherits an IRA, the distribution requirements depend upon whether the client-beneficiary is a spouse or non-spouse beneficiary. A spousal beneficiary has the option of rolling the funds into an inherited IRA or his or her own IRA, and can wait to begin taking RMDs until reaching age 70 1/2. A non-spousal beneficiary cannot wait until age 70½ to begin taking RMDs. (Photo: iStock)
4. Inheriting Qualified Plan Funds While inherited IRAs often may be distributed over time, qualified plans (such as 401(k)s and profit-sharing plans) do not allow the funds to be distributed over the beneficiary’s life expectancy. (Photo: Shutterstock)
5. Formula Trusts Should Be Re-evaluated Post-Reform Many clients have used so-called "formula trusts" in their estate planning to take advantage of the full transfer tax exemption, which changes each year. Like many other estate planning techniques, these trusts will need to be re-evaluated in light of the increased estate tax exemption amount. (Photo: Shutterstock)
6. Portability Remains Possible Post-Reform Portability simply allows a surviving spouse to make use of both his or her individual federal estate tax exemption and the exemption granted to a first-to-die spouse. The portability rules were not changed by tax reform. (Photo: Shutterstock)
7. Reevaluating SLAT Trusts A spousal lifetime access trust (SLAT) can potentially be useful in allowing clients to take advantage of the full transfer tax exemption before it expires after 2025. However, the risk of divorce must also be considered — once the client creates the SLAT, if he or she divorces the spouse, the client could lose control of SLAT assets. (Photo: Thinkstock)
8. ING Trusts: Complete vs. Incomplete Gift Strategy An ING trust is an intentionally non-grantor trust that is primarily designed to generate income tax savings, but can add value from an estate planning perspective in light of the temporary nature of the enlarged estate tax exemption. Gifts to the trust can be either incomplete, allowing the trust creator to retain a degree of control over the assets and avoid gift taxes, or complete, meaning that the transfer would create a deduction from the client’s lifetime transfer tax exemption amount. (Photo: Shutterstock)
9. State-Level Estate Taxes Remain an Issue Post-ReformDespite the generous federal-level transfer tax exemption, states that continue to impose their own estate taxes have largely decided against matching the federal exemption. Washington, D.C., determined that its exemption would remain at the $5.6 million level, while Hawaii kept its exemption at $5.49 million (the same as the federal exemption amount in 2017). (Photo: Shutterstock)
10. $11.4 Million Exemption Is Only Temporary: Flexibility Is Key Finally, in all of their planning, clients should consistently be reminded that the $11.4 million transfer tax exemption (as adjusted for inflation in 2019) is only temporary. After 2025, it is set to revert back to the pre-reform levels of around $6 million per individual, factoring in anticipated inflation adjustments. (Photo: Shutterstock)
Although every client should review his or her estate planning strategy on a fairly regular basis, after a major tax overhaul, it’s important for clients to take an even more detailed look at the various elements of their estate plans.
For some clients, this will require evaluating changing circumstances and future goals to determine whether existing trusts and other planning strategies continue to make sense in light of tax reform. Here are the top issues that clients may need to consider in 2019.