Estate Planning and A Gift for the Future

Chuhak & Tecson’s team of more than 20 attorneys who concentrate in trusts & estates have been incredibly busy. Learn what all of the fuss around death and taxes has been about.

Much ado about nothing?
President Biden’s initial “Build Back Better” $3.5 trillion infrastructure bill released in Sept. 2021 included sweeping changes in the estate tax arena, including a decrease in the exemption effective Jan. 1, 2022. Along with the proposal to decrease the exemption, the Democratic Party also proposed restrictions on valuation discounts and the use of grantor trusts. This sent clients and advisors scurrying to implement plans as soon as possible. However, the revised proposal shared in late Oct. 2021 eliminated all of these proposed changes. As we await final legislation, for those clients contemplating gifting, plans have moved forward at a rapid rate to avoid the rush prior to the 2026 reversion, explained below.

$12.06 million exemption – use it…or lose it!
Under the 2017 Tax Cuts and Jobs Act, Congress doubled the amount that could be passed gift or estate tax free from $5 million, adjusted for inflation, to $10 million. As adjusted for inflation, the exemption is now $12.06 million and is scheduled to increase annually. However, the $10 million exemption is not permanent. Under the existing law, as of Jan. 1, 2026, the exemption reverts back to the $5 million level, adjusted for inflation. The exemption amount can be passed at death – or can be gifted during lifetime. As a result, many clients are racing to use the higher exemption before it disappears. Arguably, the sooner the assets are gifted the better to allow for the asset and all future appreciation to pass estate tax free.

Sweeping changes at the state level
Effective Jan. 1, 2020, Illinois made so many changes to its trust code that it renamed the law. Irrevocable trusts formed prior to 2020 remain subject to the prior Illinois Trusts and Trustees Act. The new Illinois Trust Code has little impact on a revocable living trust during lifetime, but may have a dramatic impact after one’s death. One of the biggest issues relates to notices and accountings. The new Illinois Trust Code allows a contingent beneficiary (someone who is next in line) the ability to demand an accounting, unless the trust provides otherwise. We recommend that clients update their revocable living trusts to comply with the new Illinois Trust Code and include exceptions from some of the unnecessary administrative steps.

SECURE Act
Also effective Jan. 1, 2020, Congress passed the SECURE Act which has sweeping implications for retirement plan assets. A spouse’s ability to do a spousal rollover and treat the IRA as if it is her own is still allowed. Historically, a beneficiary other than a spouse would be able to “stretch” an inherited IRA over her life expectancy, allowing a limited amount of required minimum distributions annually. The SECURE Act now requires an inherited IRA to be cashed out within 10 years. We are encouraging clients to review their beneficiary designations and, where applicable, update the terms of their revocable living trusts to allow for the greatest flexibility in making the required minimum distributions.

While the legislative landscape remains in flux, the need to engage in dynamic planning is more critical than ever. We would be happy to schedule a time for us to discuss how these legislative changes impact your estate plan. Please feel free to contact us to schedule a call. In the interim, if you are interested in learning more, please click here to be notified when Lindsey Paige Markus’ book, A Gift for the Future, will be available on Amazon.

Client alert authored by Lindsey Paige Markus (312 855 6417), Principal.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.