By Vanessa L. Kanaga
As any estate planner knows, the 2017 law commonly referred to as the "Tax Cuts and Jobs Act" or "TCJA" (Pub. Law 115-97) changed the landscape of estate planning, perhaps not permanently (because what tax law is ever permanent?), but for the near future. The Basic Exclusion Amount (the amount that can pass free of gift or estate tax) doubled to over $11 million under the TCJA, making estate tax planning far less important for most clients and their estate planners. In truth, this merely accelerated a decline in the importance of transfer tax planning that had been the trend for several years, or at least since the American Taxpayer Relief Act of 2012 "permanently" increased the Basic Exclusion Amount to $5,000,000, adjusted for inflation. The good news, at least for estate planners, is that the TCJA also enacted new provisions relating to the federal income tax that affect a number of estate planning clients, and provide new opportunities for the attorneys advising them.
Income Tax Planning Opportunities Using Non-Grantor Trusts
The $10,000 limit on the deduction for state and local taxes unrelated to a trade or business (sometimes referred to as the "SALT" deduction), in new Section 164(b)(6) of the Internal Revenue Code (the "Code"), has the potential to increase the federal income tax bill of many clients, particularly those in states with high income or property tax rates. In response to this new limitation, estate planners have devised new planning techniques involving Incomplete Non-Grantor Trusts and Non-Grantor Spousal Access Trusts (referred to in the InterActive Legal programs as the "ING" Trust and the "SALTy SLAT," respectively). These techniques are intended to effectuate the transfer of assets to trusts in order to avoid state income tax, or divide ownership among multiple taxpayers, each of which is entitled to its own SALT deduction. I mention these techniques as an example of the shift in focus to income tax planning under the TCJA regime, and will not go into detail here. If you are interested in learning more, I recommend watching the webinar recently presented by Martin Shenkman, Bill Lipkind, and InterActive Legal Editor-in-Chief Jonathan Blattmachr, INGs: Extraordinary Planning Tool to Reduce Income Tax Even for Those in Income Tax Free States, available on the Shenkman Law website.