Shifting Gears – Rising Rates and Legacy Planning

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“Relatively small shifts in applicable interest rates can have a disproportionate effect on the performance of rate-sensitive legacy planning. Appreciating the potential economic impact of the rate changes and how other factors, such as payment structure, term selection, and asset valuation, also can complement overall performance, may help clients and advisors to better customize the planning to achieve the intended goals.”

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Retracting the Claws – Proposed Regulations Seek to Eliminate Estate Tax Clawback

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“Planning with the higher federal gift and estate tax exemption may be a “use it or lose it” proposition.  With the elimination of clawback and the limited window for higher exemptions, families able to make significant lifetime gifts may want to fully exhaust their exemptions before 2026, such as by using large gifts to fund dynasty trusts, implement business succession plans, and/or fund exit plans for existing planning arrangements (e.g., installment sales to grantor trusts or split-dollar arrangements).”

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Generational Split Dollar (GSD): Where Are We Now?

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“With its recent success in disputing the valuation of the reimbursement rights in economic benefit GSDs, the IRS is doubling down on its challenges to these arrangements.  Clients with existing EB GSDs should meet with their advisors now to review their options, putting together an action plan that can be implemented promptly, as needed, if and when there is a final decision on EB GSD valuation.  Clients considering new EB GSDs should contemplate the purpose of the arrangement and understand that no valuation discount may apply upon transfer of the GSD reimbursement.”

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Protecting Your Charitable Deduction – The IRS Issues Final Guidance

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“The IRS has issued long awaited guidance concerning the proper reporting of cash and noncash charitable contributions…Failure to comply strictly with these requirements can result in a denial for some or all of a claimed deduction.”

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Warning Will Robinson: Tax Reimbursement Clauses May Cause Problems

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“As creators (“grantors”) of irrevocable grantor trusts must pay the trusts’ annual income taxes without receiving any trust benefits, advisors typically suggest incorporating a tax reimbursement power that gives the trust flexibility to reimburse the grantor for the tax payment. Despite their prevalence, however, tax reimbursement powers must be crafted and used with care, not simply exercised as a matter of course.” 

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Tax Court Speaks to Possible Estate Tax Treatment of Generational Split Dollar (GSD)

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“Despite positive opinions on GSD gift taxation, the Tax Court’s analysis of the potential estate taxation of economic benefit GSDs will require a long, hard look at these arrangements and their continued viability.  For the first time, two very recent Tax Court opinions (Est. of Cahill v. Commissioner and Est. of Morrissette v. Commissioner) have discussed the court’s view of the estate taxation of economic benefit GSDs.  Neither Cahill nor Morrissette is a final decision on the merits. Yet the court’s reasoning in Cahill strongly suggests that, at least in that case, the Tax Court may find that the parent’s estate includes the full value of the reimbursement right under the economic benefit GSD.  This finding would eliminate the possibility of a significant valuation adjustment for the reimbursement and undercut one rationale for using economic benefit GSDs in estate tax planning.” 

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Flipping the Script: Nongrantor Trusts with Grantor Trust Benefits – Can It Be Done?

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“With careful planning, donors of nongrantor trusts can achieve benefits similar to those provided by typical grantor trust provisions without triggering grantor trust status.”

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A View from the Experts: Select Insights from the 2018 Heckerling Institute on Estate Planning

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“Presenters at the 2018 Heckerling Institute on Estate Planning identified several enhanced areas of focus for legacy and life insurance planning post tax-reform, including (1) basis adjustment planning, (2) the potential benefits and pitfalls of portability, especially in light of the doubled federal transfer tax exemptions, and (3) the need to review and refresh existing life insurance planning.”

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AALU – Moving On: Changing State Tax Residency – Easier Said than Done

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 “States have become more sophisticated in challenging residency changes. To ensure a complete change in tax residency, relocating families must know the requirements in both the new and old state, sever as many connections as possible with the old state, and create substantial ties with the new one.”

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