Estate Planning Hot Topics For 2018
1. Big Changes to the Federal Estate Tax Exemption.Now that the Tax Cuts and Jobs Act (the “Act”) has been signed into law, the federal estate, gift and generation-skipping transfer (“GST”) exemption amounts for individuals have dramatically increased from $5.49 million per person in 2017 to $11.2 million per person beginning January 1, 2018, with a combined $22.4 million exemption amount available for married couples. The annual federal exemption amounts are set to increase annually indexed with inflation through December 31, 2025. On January 1, 2026, without further changes to the tax laws, the exemptions will return back to the previous federal tax law.
If you have questions about how this short-term increase to the federal estate, gift and GST exemption amounts might be used to benefit your family’s legacy planning for generations to come, it’s important to consult with your estate planning attorney.
2. Increase to the 2018 annual gift tax exclusion.In 2018, you may give up to $15,000 per recipient per year (which is an increase from $14,000 per person from 2013-2017) without affecting your gift or estate taxes. Spouses can combine their gifting power to transfer up to $30,000 per recipient per year. Remember, gifts in excess of the annual exclusion are reportable to the IRS on a gift tax return. In addition, any amount in excess of $15,000 reduces your lifetime federal gift and estate tax exemption.
There are many options for how to make an “annual exclusion” gift, including but not limited to transfers of cash, real and personal property, provision of goods and services, and payment of another’s obligations. In addition, the IRS will also consider certain transactions as gifts, such as loans between family-members with below-market interest rates or the sale of a home for a bargain price.
So, before writing a $15,000 check per recipient this year, be sure to consider all other possible gifts you have made and check with your tax professional or estate planning attorney to determine whether a gift tax return should be filed.
3.Succession Planning for Family-Owned Cannabis Businesses.Commercial cannabis sales, both recreational and for medical purposes, have been legalized in many states, most recently in California, Washington, Oregon and Colorado. Despite marijuana continuing to be a banned substance at the federal level, commercial cannabis businesses in states that allow it are flourishing.
Like with any new industry, there is often a gold-rush mentality to get ahead of the competition by investing and growing the business plan quickly. In that rush to succeed, small family-owned business owners, regardless of the industry, often focus on growth and development of the business and put off succession and estate planning.
However, without proper planning prior to the death or incapacity of a founding owner, family members might find themselves excluded from participating in the day-to-day operations of the business. In addition, a lack of a written agreement can often result in disagreements over valuing the business for a buy-out. Specialized state industry cannabis licenses could be in jeopardy with the death of the owner of the license without prior planning. Expected income streams for a spouse or the owner’s children may not materialize. All of these problems can create significant family stress, expense and can often put serious restraints on relationships.
A written succession agreement should be a foundational element for any family business in planning for retirement as well as setting out the rules in handling the unexpected incapacity or death of a business partner. Maintaining life insurance, disability, and umbrella policies against the disability or death of key players in the business will help to insulate the business as well as the families supported by the business.
Finally, individual business owners should consider updating their own estate plans to nominate who they want to act for them in the event of incapacity or death as well as to develop a distribution plan in their Will or Trust. Thinking through the “what ifs” in advance of an unexpected death will set the stage for a smooth transition of a thriving business from one generation to another.
If you are involved in a small family-owned business or have questions about succession planning, it’s important to seek support from your business and estate planning attorneys.
4. Changes to ABLE Accounts for People with Disabilities and their Families.ABLE accounts were first created by the “Achieving a Better Life Experience Act” (“ABLE”) in 2014, and allow some persons with disabilities along with their families to save for disability related expenses, while maintaining Medicaid eligibility and needs-based public benefits.
In 2017, a qualified ABLE account may accept up to a $15,000 annual contribution. Tax changes for 2018 now allow families who’ve already saved funds in a 529 savings account to roll over up to $15,000 each year from the 529 account to the ABLE account so long as the 529 account was for the same beneficiary or for a member of the same family as the ABLE account holder.
In addition, ABLE account beneficiaries are now able to deposit their own income up to the Federal Poverty level, which is currently $12,060 for a single person in most states, even if the $15,000 annual contribution cap has been reached.
Be aware that the tax and benefits qualification rules for establishing and maintaining ABLE accounts are complex. Before making annual contributions to a family member’s ABLE account, it is important that you consult with your tax professional or your estate planning attorney for more information.
5. Digital Currencies.
With an improving economy and increasing comfort with online marketplaces, digital currencies, such as Bitcoin, Ethereum, Ripple, and Litecoin, are becoming arguably more mainstream, with Bitcoin Kiosks in local malls and increased media attention.
Digital currencies are notorious for their strong privacy and security measures, which often allow anonymous coin storage and purchasing power. However, that same high level of privacy and security can also make the digital currency impossible to locate or access in the event of the incapacity or death of the owner.
Sound strategies to avoid the pitfalls of lost digital currency might include inventorying your digital assets, creating several security levels to allow easier access for some levels of your digital currencies, and updating your estate planning documents to anticipate the need for the protection and distribution of digital assets in the future. Implementing an estate plan that includes instructions on the management and distribution of digital assets, in the event of your incapacity or death, will provide peace of mind and may reduce the risk of your digital currencies being forgotten or permanently locked and inaccessible.
If you already own digital currencies or are considering purchasing digital assets in the future, remember that your estate planning attorney is a great resource to help you weigh privacy concerns in online marketplaces versus establishing easy access to digital currencies in the future. Your estate planning attorney is ready to work with you to create an estate plan that anticipates the complexities of an increasing digital footprint.
If you would like to learn more, call our Portland office at 503-227-1515, our Vancouver office at 360-823-0410 or schedule a consultation online.
*This is general information only and not meant to apply to specific situations without consulting a tax professional and benefits specialist.*
Written by Amy J. Cross, Of Counsel at Gevurtz Menashe. Amy is a member of the Oregon state bar and focuses her practice exclusively on estate planning issues, including wills and revocable trusts, estate and gift taxes, probate administration, asset protection planning, and beneficiary and trustee representation.