Compared to the late 1990s, the new Trump gift and estate tax laws are superb and protect family businesses, farms, couples, single parents, and families with many children and grandchildren.
After a review of the new tax law, it must be said that at this time, estate tax is not a problem for most folks unless you are very wealthy.
However, the new tax law is a temporary law which gives rise to the strategic gifting opportunities.
Here are a few ideas for gifting if you are wealthy or a business owner.
- Make gifts of public or private stock each year to your children and grandchildren without limiting your corporate powers. Use an entity such as an LLC to own assets and give “member interests” of ownership to your loved ones but maintain control with your LLC operating agreement.
- If you are with a company that is quickly appreciating in stock value, you may set up trusts to own the stock on behalf of children and grandchildren.
- Fully funding accounts and trusts for disabled children with special needs.
- Since you can transfer large amounts of assets under the new law, the use of trust documents can be wonderful in that they can protect children and grandchildren for a lifetime. Example: You can elect to have a trust give 1/3rd to a child at 30 years old, another 1/3rd at 50 and another 1/3rd at 60 years old while also allowing for education, health and welfare payments to be made to loved ones by trust officers.
- Trusts are only good if they are funded. Thus, the new law allows for a lot of money to fund trusts for spouses, children, and extended families. But, the law could change one day in the future.
- Of course, you can strategically fund 529 educational plans for many children and grandchildren without gift tax implications.
- You could also fund various types of insurance trusts for both yourself and your loved ones or even a dynasty trust.
- A wealthy person could help buy homes for their children.
- An owner can diversify by gifting their holdings in land, small business stock, or mineral rights.
- As for retirement, a wealthy donor could fund retirement products or loved ones such as an annuity or single premium variable life product. Funding a permanent insurance product for a child would actually protect the child and their children.
GIFTS - Together, a married couple can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013 (including 2014, 2015, 2016 and 2017). In 2018, the total for you and your spouse is $30,000. These gifts should be documented and it is generally best to have the recipient sign a document accepting the gift into an account.
ESTATES - Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return.
A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent's dying in 2010 and 2011 (note: there are special rules for decedents dying in 2010); $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, and $11,180,000 in 2018.
11.2 MILLION PER PERSON * The Trump Tax Law doubles the estate and gift tax amount from $5 million up to $10 million. Indexing for post-2011 inflation, this calculates to about $11.2 million for 2018, and $22.4 million for each married couple, with some basic portability techniques.
GIFTS DURING LIFE * You can gift up to $11.2 million tax-free as an individual throughout of your lifetime. Or, you could give up to $22.4 million as a couple during your life but this eliminates your ability to leave anything tax free at death.
UNUSED EXPEMPTION: Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election.
IRS GIFT FORMS - Form 8971 Instructions (PDF). This item is used to assist in filing Form 8971. Form 709 (PDF). Form 709 is used to report transfers subject to the Federal gift and certain generation-skipping transfer (GST) taxes, and to figure the tax, if any, due on those transfers.
This new tax law helps protect families and children of means from becoming dependent upon society and taxpayers. In the past, the gift and estate taxes could virtually bankrupt a family farm or business while the children and grandchildren would then become dependent upon public assistance. These new laws help families pay for their own education, health, and housing and allows existing companies to maintain continuity.
* * Please consult with a local licensed professional before making any decision about finances, law, tax or any important decision.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations. Mentz is an award winning author and advisory board member to several companies around the world in education, charities, and crypto currency.
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