New York Estate Planning & Elder Law Blog
Democrats in the House of Representatives recently released their plan on how to adjust basic income and estate taxes for both businesses and families. While it’s impossible to provide a comprehensive review of what these various pages contained. This article addresses a few of the major announcements.
Only a few of the proposed changes would end up impacting either transactions or transfers that are made before the Act would be passed and many of these changes would not be implemented until January 1, 2022, but people who are being advised to transfer substantial values to irrevocable trusts as gifts before exemptions amount are lowered by half or people might be required to plan to gift the amounts to people or entities other than grantor trusts.
Estate and Gift Tax Exemptions
Estate and gift tax exemptions will be reduced to one-half their current amount effective January 1st, 2022. This means that a person can make gifts or pass on the estate until this time at a higher rate. Also, no “clawback” exists for the use of the increased exclusion amount, which means that a person will not be penalized if that individual makes a gift or passes on an estate following death before this time. To make the most of the current increased exemptions, gifts must surpass the amount to which the exemption will be lowered. This change represents bad news for many
people.
Potential Impact on the Use of Qualified Personal Residence Trusts
A qualified personal residence trust involves a homeowner transferring either homestead or vacation property to a trust. Transferring assets in such a way permits the trust’s creator to utilize the property without being subject to rent for several years. Performing this transfer also makes the value of the ownership interest in the property below the home’s full value due to the discount provided by the present value of the free use possessory term.
Following the grantor’s death, the property’s entire value will be held by the trust to avoid estate tax. Also, the grantor will pay rent following the expiration of the period of years. This allows the grantor to continue using the property while offering continued valuation advantages.
These trusts can be created to be disregarded as far as income tax is concerned so rent paid for use is not subject to taxation, and the property is viewed as owned by the taxpayer in the event of a sale to qualify for the exclusion for the sale of a primary residence.
Under the new act, qualified personal residence trusts created and funded by deed before the enactment date will receive these benefits.
Trusts that are created and receive funds by deed following the enactment date, however, will cause the property to be viewed as gifted in full when the trust is constructed.
Contact an Experienced Estate Planning Attorney
One of the best ways to make sure that your estate plan considers approaching changes is to speak with an experienced attorney. Contact Ettinger Law Firm today to schedule a free case evaluation.