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Old 11-11-2020, 06:31 PM   #41
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If you don't mind me asking can you give a ball park of the sum?
$800k.
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Old 11-11-2020, 06:56 PM   #42
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$800k.
Thanks it makes me wonder if the amount is above x do they try to grab it then?
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Old 11-13-2020, 06:31 PM   #43
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Start giving money to your heirs now including contributing to 529 accounts for grandchildren.
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Old 11-13-2020, 10:55 PM   #44
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I think DW and I can give up to 60k per year total to each of our kids (incl their spouses). So, part of my plan for this, if it looks like I need to reduce my estate, would be to pay down the kidsí mortgages, fund Roth IRAs for our kids, and perhaps help when they need a car replacement. Further, we could gift to grandkids if we wanted, $30k each per year, and fund 529s. We may want to be careful how those accounts or trusts are set up, so that they receive pieces of it at certain milestones, but it seems it could be done....all without going against the exemption and extra forms to be filed. If we needed quick reduction, then yes, larger gifts and forms would be required. But I donít think there is a need to put the cart before the horse here. It seems that if some of these new rules do pass, there will be some time to take action before they would take effect.
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Old 11-13-2020, 11:01 PM   #45
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> How do you plan around such wide potential changes in the law?

I am an estate planning lawyer. My answer to this question: you don't.

You can't set up a plan that will take you through the next 20-30 years without any change. It's foolish to expect that this can be done.

You set up a plan to address what will probably happen in the next few years based on current law, and you then plan to update your planning every few years, so that your needs can be updated in light of any changes in the law that have occurred recently, and in light of your own changing personal situation.
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Old 11-13-2020, 11:56 PM   #46
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> How do you plan around such wide potential changes in the law?

I am an estate planning lawyer. My answer to this question: you don't.

You can't set up a plan that will take you through the next 20-30 years without any change. It's foolish to expect that this can be done.

You set up a plan to address what will probably happen in the next few years based on current law, and you then plan to update your planning every few years, so that your needs can be updated in light of any changes in the law that have occurred recently, and in light of your own changing personal situation.
Right. I think my concern would be what the previous poster alluded to in their last sentence: Does one need to plan ahead enough so that wide potential changes in the law don't get you in trouble? In other words, it's not so much the durability of the plan as it is the ability of the plan to be changed rapidly enough to respond to big changes.

For example, a situation I'm imagining is someone with a $10M estate now who does some gifting now in anticipation of the $6M exemption in 2026, but then the government reduces the exemption to $1M in 2024 instead, and that person who was doing some gifting should have been doing aggressive gifting instead - they were giving away $4M but needed to give away $9M instead.

It would be lovely if the laws changed slowly enough to where this kind of retrospective regret didn't happen, but I don't know how often that happens vs. getting caught with rapid changes that can't be responded to in a tax efficient way.

(I think I'm circling back to what @cathy63 hinted at before, which is that sometimes paying more taxes than ideal is simply unavoidable. My Mom really didn't like paying taxes and went through a great deal of effort to avoid it. I think I inherited my quixotic tax avoidance nature from her genes and her example and her Scottish heritage. I'm not sure if I'll be able to change or even if I want to.)
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Old 11-14-2020, 05:43 AM   #47
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> How do you plan around such wide potential changes in the law?

I am an estate planning lawyer. My answer to this question: you don't.

You can't set up a plan that will take you through the next 20-30 years without any change. It's foolish to expect that this can be done.

You set up a plan to address what will probably happen in the next few years based on current law, and you then plan to update your planning every few years, so that your needs can be updated in light of any changes in the law that have occurred recently, and in light of your own changing personal situation.
You are qualified!

Can you dumb it down for me. If I am married and know today my estate (NW) is over the 2026 $11M threshold, but not over the combined $22M+ limit today, can I not wait until I know for sure what the estate tax law will be, and prior to that date, set up the appropriate trusts to avoid the estate tax? Or, are there specific strategies prior to 2026 I really should take now (i.e. gifting now, Roth conversions)? Are there certain assets that fall outside of/not counted toward the estate value as it relates to the estate tax?
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Old 11-14-2020, 05:46 AM   #48
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For example, a situation I'm imagining is someone with a $10M estate now who does some gifting now in anticipation of the $6M exemption in 2026, but then the government reduces the exemption to $1M in 2024 instead, and that person who was doing some gifting should have been doing aggressive gifting instead - they were giving away $4M but needed to give away $9M instead.
More aggressive gifting? Someone with a $10M estate taking it down to $1M in 4 years? How old is this person? What are they supposed to live on? What about their long term care needs? Honestly, I canít see someone gifting away 90% of their net worth in such a short period unless the remainder was still substantial.
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Old 11-14-2020, 05:56 AM   #49
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But I donít think there is a need to put the cart before the horse here. It seems that if some of these new rules do pass, there will be some time to take action before they would take effect.

My Estate Attorney did express concern they any changes could be made retroactive to Jan 1, 2021. However, that was if the Senate flipped.
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Old 11-14-2020, 10:27 AM   #50
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We've (unmarried couple) made a point of owning all our real estate jointly, not as tenants in common. Our understanding is that at the death of the first owner it is as if they never had an ownership in the property estate-wise. Bank account and some stocks we either own jointly or have beneficiaries named, thus setting up an informal trust. We each have some stocks individually owned and with our individual blood relatives named as beneficiaries so those relatives get a chunk at the death of the first of us to go. Surviving partner gets the bulk of the estate and is thus provided for till the end of the their days and gets to figure out how they want to deal with the estate.
I'm an Oregon resident - Oregon has a tax that kicks in at the 1M mark. She is a California resident - California's estate tax mirrors the Federal ~$11M initial tax amount. Current estate is less that $11M and way more than $1M. My expectation is that I will pre-decease her. Such is our plan, which we believe to be simplest and maybe best for us.
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Old 11-14-2020, 11:14 AM   #51
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Originally Posted by DawgMan View Post
You are qualified!

Can you dumb it down for me. If I am married and know today my estate (NW) is over the 2026 $11M threshold, but not over the combined $22M+ limit today, can I not wait until I know for sure what the estate tax law will be, and prior to that date, set up the appropriate trusts to avoid the estate tax? Or, are there specific strategies prior to 2026 I really should take now (i.e. gifting now, Roth conversions)? Are there certain assets that fall outside of/not counted toward the estate value as it relates to the estate tax?
I'm not the person you asked, but you may be interested to investigate the DSUEA - Deceased Spouse Unused Exemption Amount.

The problem I see in general is that you don't know for sure what the estate tax law will be until you die, and the government tends to change the rules frequently enough and by large enough amounts where if they changed things adversely it could mess up any plans.

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More aggressive gifting? Someone with a $10M estate taking it down to $1M in 4 years? How old is this person? What are they supposed to live on? What about their long term care needs? Honestly, I canít see someone gifting away 90% of their net worth in such a short period unless the remainder was still substantial.
It was a hypothetical intended to illustrate a point. But in the actual case I'm thinking about, the person is old enough and wealthy enough to where the estate tax is an issue to be considered. I had thought about the "what to live on" question, and my thoughts there were (a) only give enough away such that the remainder was enough to live on, and (b) the recipients of the gift would be trustworthy enough and have enough respect to help pay for any long term care needs of the person. (B) might not be workable for any number of reasons.

I'm still trying to analyze the landscape myself.
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Old 11-14-2020, 11:31 AM   #52
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Another thing to consider is setting up a "Crummey Trust" for your children/grandchildren. You make a contribution up to the gift limit. The recipient has a specific amount of time to withdraw that money and if they do not, then it is subject to the distribution rules of the trust (and if they DO withdraw, the recipient knows that you will not be contributing again!).

When my mother set up this for the grandkids, the distribution she set up was 1/3 at 25, 1/2 at 30 and the rest at 35 with the additional note that it could be used for college expenses. However one downside is that this trust (even if there are no distributions until later in life) is counted as an asset in FAFSA applications.

https://www.investopedia.com/terms/c/crummey-trust.asp
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Old 11-14-2020, 11:41 AM   #53
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... She is a California resident - California's estate tax mirrors the Federal ~$11M initial tax amount. Current estate is less that $11M and way more than $1M...
California currently has no estate or inheritance taxes, even for estates over the Federal min of $11.58M. There was an attempt in the CA legislature last year to pass a new estate tax, but the bill died, and even if it had passed it would have had to be approved by the voters before it could go into effect.
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Old 11-14-2020, 11:44 AM   #54
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It was a hypothetical intended to illustrate a point. But in the actual case I'm thinking about, the person is old enough and wealthy enough to where the estate tax is an issue to be considered. I had thought about the "what to live on" question, and my thoughts there were (a) only give enough away such that the remainder was enough to live on, and (b) the recipients of the gift would be trustworthy enough and have enough respect to help pay for any long term care needs of the person. (B) might not be workable for any number of reasons.

I'm still trying to analyze the landscape myself.
Well the point it illustrates to me is make darn sure you have plenty more than enough for yourself and spouse before gifting it all away while alive. So what if the remaining estate is subject to tax? Judicious gifting is a great idea (and something we ourselves have been aggressive with) but we’re not going to let estate taxes overwhelm other considerations. We’ll be careful to preserve pass through unused exemptions, etc.

We absolutely won’t gift the bulk of our net worth expecting recipients to help us out if we end up overdoing it. Talk about sacrificing financial independence!
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Old 11-14-2020, 11:46 AM   #55
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This is how I understand a reduction in the threshold for the estate tax works if you gift or plan to gift to avoid the tax. Right now it is ~$11M/pp or $22M/ couple. Let's say a couple is worth $20M now and gifts $15M of their estate.
If they both died this year, no estate tax is owed.
If one died this year and the spouse took the late spouse's estate tax exemption, then died next year with an estate value of $6M (a $1M increase in value from the original $5M, no estate tax is owed.
If the spouse lived until 2026 and the remaining estate was valued at $8M, and the estate tax threshold reduced to $6M/pp or $12M/couple, her estate would have to pay tax on the entire $8M of her remaining estate because the original gifts of $15M are greater than the current lifetime exemption allowed. However there would be no effect on the original $15M gift under the previous $22M/per couple rule.
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Old 11-14-2020, 05:36 PM   #56
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Thanks it makes me wonder if the amount is above x do they try to grab it then?
Probate varies significantly from State to State.
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Old 11-14-2020, 06:35 PM   #57
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I don't think your last example is quite right. Based on the IRS' announcement of the "no clawback" rules, here's how I think it would work.

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This is how I understand a reduction in the threshold for the estate tax works if you gift or plan to gift to avoid the tax. Right now it is ~$11M/pp or $22M/ couple. Let's say a couple is worth $20M now and gifts $15M of their estate.

When it comes to calculating gift and estate tax, giving is an individual act, so let's reword the conditions to say each member of the couple gives away $7.5M while they are alive and while the exemption is $11.5M and they checked the box on form 709 to indicate that.

If they both died this year, no estate tax is owed. Agree

If one died this year and the spouse took the late spouse's estate tax exemption, then died next year with an estate value of $6M (a $1M increase in value from the original $5M, no estate tax is owed.

Agree. In this case, the first decedent's estate uses $7.5M of the $11.5M exemption to cover the gifts, leaving $4M that can be ported to the surviving spouse. The second estate now has a total exemption of $15.5M, $7.5M of which covers her gifts. The remaining $8M of the exemption will cover the $6M estate.

If the spouse lived until 2026 and the remaining estate was valued at $8M, and the estate tax threshold reduced to $6M/pp or $12M/couple, her estate would have to pay tax on the entire $8M of her remaining estate because the original gifts of $15M are greater than the current lifetime exemption allowed. However there would be no effect on the original $15M gift under the previous $22M/per couple rule.

This is where I disagree. As in the previous example, the first decedent's estate uses $7.5M of the $11.5M exemption to cover gifts, leaving $4M that can be ported to the surviving spouse. Per the IRS, that $4M won't be clawed back. The second spouse dies in 2026, when the exemption is $6M so that estate has a total exemption of $10M. $7.5M will cover the previous gifts and the remainder of $2.5M is applied against the $8M estate, leaving "only" $5.5M subject to tax.
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Old 11-14-2020, 07:32 PM   #58
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That's not how I understand it. The IRS will not claw back on gifts made for the exemption in effect at the time the gifts were made. But I can't find where you claim the higher portability stays in effect.
https://www.irs.gov/newsroom/estate-and-gift-tax-faqs

Q. How did the IRS clarify the law?

A. To address concerns expressed by a number of stakeholders, the proposed regulations clarify that people taking advantage of the increased BEA by making gifts during the period 2018 to 2025 will not be harmed after 2025 when this amount is scheduled to drop. The regulations provide a special rule that effectively allows the estate to compute its estate tax credit using the greater of the BEA applicable to gifts made during life, or the BEA applicable on the date of death. As a result, people planning to make large gifts between 2018 and 2025 can do so without being concerned that they will lose the tax benefit of the higher exclusion level once it decreases.

Q. How does the special rule work?

A. Hereís an example. Before 2018, A had never made a taxable gift. In 2018 when the BEA is $11.18 million, A makes a taxable gift of $9 million. A uses $9 million of the available BEA to reduce the gift tax to zero. A dies in 2026. Even if the BEA is lower that year, Aís estate can still base its estate tax calculation on the higher $9 million of BEA that was used in 2018.
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Old 11-14-2020, 07:38 PM   #59
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That's not how I understand it. The IRS will not claw back on gifts made for the exemption in effect at the time the gifts were made. But I can't find where you claim the higher portability stays in effect.
The DSUEA occurs at the time of death and is basically whatever portion of the BEA that the first-to-die spouse doesn't use. (*) My understanding is that the surviving spouse gets to add that amount, whatever it is, to their BEA when they die.

I assume the reason the IRS hasn't clarified that point is either (a) nobody has thought to ask them yet, and/or (b) the DSUEA rule is the same regardless of changes to the BEA, so there's no need to clarify anything because everyone can follow the same basic rule no matter what their BEA situation plus gifting history turns out to be.

(*) Of course, someone responsible has to file a Form 706 in timely fashion and check a box somewhere on there, and probably do the calculations to figure out what the DSUEA actually is.
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Old 11-14-2020, 07:56 PM   #60
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The DSUEA occurs at the time of death and is basically whatever portion of the BEA that the first-to-die spouse doesn't use. (*) My understanding is that the surviving spouse gets to add that amount, whatever it is, to their BEA when they die.



I assume the reason the IRS hasn't clarified that point is either (a) nobody has thought to ask them yet, and/or (b) the DSUEA rule is the same regardless of changes to the BEA, so there's no need to clarify anything because everyone can follow the same basic rule no matter what their BEA situation plus gifting history turns out to be.



(*) Of course, someone responsible has to file a Form 706 in timely fashion and check a box somewhere on there, and probably do the calculations to figure out what the DSUEA actually is.


Something to ask my attorney to clarify next time we meet, though it will be a while. But as I understand from our last meeting, the DSUEA will not carry over the higher numbers. Either way, letís hope we donít have to worry about it in the near term. Iíd rather my wife and I have many more years together! Good night!
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