December 2021 Issue: Tax Proposals Could Reshape Planning-Tax Proposals Could Reshape Planning by Martin M. Shenkman

Tax Proposals Could Reshape Planning by Martin M. Shenkman

Pdf Summary

Proposed changes to estate and income tax laws could have significant implications for investment, retirement, estate, and tax planning. Some of the key changes include reducing the gift and estate exemptions, limiting the use of grantor trusts, and restricting valuation discounts. It is important for wealthy individuals to review the pros and cons of making transfers to heirs or trusts before the exemption is reduced. Options such as spousal lifetime access trusts (SLATs), self-settled domestic asset protection trusts (DAPTs), and special power of appointment trusts (SPATs) may be considered.<br /><br />Grantor trusts, which have long been used in estate planning, would be severely restricted under the proposed legislation. New IRS code sections would cause grantor trusts created after enactment to be included in the grantor's gross estate and trigger gift tax if assets are transferred out of the trust. This would impact common life insurance trusts.<br /><br />Other changes include the elimination of valuation adjustments for non-business assets, an enhancement of the special valuation of farmland, higher income tax rates, reduced qualified business income deductions, and the imposition of an income tax surcharge on high-income taxpayers.<br /><br />Clients should also anticipate increased IRS funding, leading to more tax audits and in-depth examinations of various types of tax returns. Caregivers may benefit from a new credit for caregiver expenses, and the net investment income tax (NIIT) may be expanded to cover income derived from a trade or business for high-income taxpayers.<br /><br />In light of these potential changes, it is advised to expect higher taxes and plan accordingly. Flexibility in estate planning is crucial, and individuals should work closely with their advisory team to coordinate planning efforts and address administrative matters.

Keywords

estate tax

income tax

investment planning

retirement planning

estate planning

tax planning

gift and estate exemptions

grantor trusts

valuation discounts

transfers to heirs or trusts