FA Magazine March 2023 | Page 61

consideration the deceased spouse ’ s unused lifetime exclusion amount ? Lots to think about .
The Sweet Spot
Heckerling 2023 also offered a provocative presentation on estate planning for the “ middle rich ,” people whose aggregate wealth falls in a band on either side of the lifetime exclusion amounts — near or above $ 12.92 million in 2023 for single individuals and $ 25.84 million for married couples . This group was obviously much larger back when the lifetime exclusion amounts were $ 5 million for singles and $ 10 million for married couples , but when the exemption was doubled in 2018 and subsequent inflation adjustments were made ( including a whopping $ 860,000 adjustment for 2023 ) it temporarily dropped lots of people in the lower and middle echelons of the “ middle rich .” However , a married couple with a $ 25 million estate may ( for the moment ) have no federal estate tax exposure yet still need good estate planning . And once the lifetime exclusion amount drops after 2025 back to the $ 5 million-plus-inflation calculation ( the current guesstimates place the reset at $ 6.8 million to $ 7 million per taxpayer ), lots of people will rejoin the middle rich ranks with a vengeance . ( For these reasons , the so-called “ 2025 Planning ” is already a burgeoning cottage industry .)
Alert : Regulations issued in 2019 ( and amended in 2022 ) allow taxpayers who utilize the full available lifetime exclusion amount before 2025 to retain that benefit even when the lifetime exclusion amount drops down to half the amount in 2026 . These regulations , which prevent the IRS from “ clawing back ” the benefits of the higher lifetime exclusion amount , are called the “ anti-clawback ” regulations and are why the “ middle rich ” should pragmatically include taxpayers with wealth in the $ 15 million to $ 25 million range : Even if they don ’ t have a current federal estate tax , they may want to exploit these anti-clawback rules before the end of 2025 . For obvious reasons , “ 2025 Planning ” could well morph from a cottage industry into a veritable industrial park by the end of 2025 .
My fearless prediction is that unless the law changes , December 31 , 2025 , will eclipse December 31 , 2012 , as the craziest single day in estate planning history .
Corporate Transparency Act Steps Out Of The Shadows
By far the biggest cocktail discussion topic at Heckerling was the “ new ” Corporate Transparency Act . It was actually enacted in 2021 but was initially overlooked by most people during the panic over the Biden tax proposals ( now officially the world ’ s biggest nothingburger ). But because the legislation is slated to take effect on January 1 , 2024 , it is stepping out of the shadows with a vengeance .
The act is most succinctly described as “ FATCA for the little guy .” Like the Foreign Account Tax Compliance Act ( FATCA ), the Corporate Transparency Act requires reporting of highly sensitive pany with a physical U . S . presence that employs more than 20 people and has gross receipts over $ 5 million , so it really is only for the “ little guys .”
The Corporate Transparency Act is both massive and intrusive . The Financial Crimes Enforcement Network estimates a staggering 32.6 million entities will file reports in 2024 , and then about five million entities will have to file reports every year after the first year . The information will go into a large database that can only be accessed by authorized governmental workers . Given the endless leaks of confidential information by the federal government in recent years , this is not terribly reassuring .
Basis Basics
Less than 1 % of U . S . citizens own more than the applicable lifetime exclusion amount , which means more than 99 % of U . S . citizens are not subject to any federal estate tax . That means an
By far the biggest cocktail discussion topic at Heckerling was the “ new ” Corporate Transparency Act . Because the legislation is slated to take effect on January 1 , 2024 , it is stepping out of the shadows with a vengeance .
personal information to the U . S . government . But whereas FATCA forced large foreign financial institutions to report bank and financial accounts opened offshore by U . S . citizens ( secret foreign accounts were always pretty much ground zero for tax and other financial fraud ) the Corporate Transparency Act has a different focus : It applies to U . S . domestic business entities formed under the laws of any state ( this includes all corporations , LLCs , and all other “ similar entities ” that are created by a filing with a secretary of state or otherwise required to register to do business ), and it requires these U . S . businesses to report confidential information about their actual or beneficial owners to the Financial Crimes Enforcement Network . Tellingly , the law exempts any com- important part of “ estate ” planning is income tax planning — especially making effective use of the step-up in tax basis under Section 1014 of the Internal Revenue Code . An effective “ income-tax oriented ” estate plan could mean the following : You try to decide which spouse is likely to live longer and put highly appreciated assets ( especially including depreciable real estate ) into a QTIPable trust ( i . e ., a revocable trust that on death will be eligible for a qualified terminal interest property election ) for the other spouse , so that the survivor will get a full step-up in tax basis when the first spouse dies . ( Note : In community property states , the full step-up happens automatically .) The same assets , thanks to the QTIP election , can then be run through the survivor ’ s estate to