In simple terms, the amount every American can pass free of tax at their death would be significantly reduced starting in 2022.
As a result, for Americans whose asset base exceeds $10 million, a frantic rush to the estate planner’s office has occurred. From Spousal Limited Access Trusts (SLATs) to grantor trusts, everyone with means was looking to add techniques to their estate plan to grandfather into the higher unified credit amount that was created under the Tax Cuts and Jobs Act of 2017 (TCJA).
And just as suddenly as everyone rushed to make changes, everything changed. What exactly happened at the end of October?
“The latest version of the tax bill removed all provisions relating to the estate and gift tax system and grantor trusts,” said Gordon. “It appears that the enhanced lifetime exemption will remain in place in 2022 and grantor trusts will still be an effective way to shift wealth to the next generation.”
This was a huge relief to wealthy families. To be fair, only a very small group of Americans will even have a taxable estate – usually it is less than 0.1% of deaths annually. But wealthy families should be thinking about potential changes that might still be looming.
To be clear, the past few years have been a unique period in estate planning. When the TCJA was passed in 2017 it completely upended the size of estate that was subject to the estate tax. Previously, each American could pass $5 million at their death or $10 million per married couple indexed for inflation. TCJA more than doubled the unified credit amount to $11.18 million per person or $22.36 million per married couple (indexed for inflation.)
For wealthy families, the increase in the exemption was a big win and they had until 2025 to adjust their estate plans – until this recent round of potential legislation.
“The proposal would have decreased the exemption back to $5 million per person, indexed for inflation, starting in 2022. The tax bill also included a provision which would render grantor trusts ineffective,” says Gordon. “As such, many wealthy Americans have been scrambling over the past month or so to use their remaining lifetime exemption amounts and fund grantor trusts before the clock runs out.”
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