Woodstock Quarterly Newsletter / Q3 2019
Multi-Generational Tax Planning
How hard is it to do multi-generational tax planning with the 2020 national election run-up showing such diverse views of potential tax policy? We try to keep two rules of thumb in mind when planning. Don’t be “too smart by half” which we believe means don’t make what can be simple too complicated and, the best tax advice ever given, “don’t be greedy”.
One of the top shelf worries is what happens to the basic exclusion amount for estate and gift tax enacted by the Tax Cuts and Jobs Act of 2017. To conform to Congress’ budget rules, the basic exclusion amount of $11.18 million per individual indexed for inflation in 2018 and subsequent years, will sunset in 2025 and drop to $5 million also to be indexed for inflation.
The “claw back” question, which also arose in 2010, is what happens to gifts made up to the adjusted $11.18 million limit that exceed the subsequent $5 million adjusted number if death occurs after 2025?
Are they retroactively taxed? The IRS has proposed a fix that would allow the greater of $5 million adjusted or the amount of actual gifts made legally before 2026 to be used by the taxpayer for deaths occurring after 2025. However, these new rules are not finalized. And, as we have learned, executive branch changes (IRS) that are not backed up by legislative changes can be undone by the next executive elected, simply by rewriting the rules.
From a practical stand point, how willing would a new Congress be to rewrite rules that the planning public has relied on? The evidence in 2019 is not good. Many clients with retirement plans are familiar with the “stretch IRA”. The stretch IRA lets “savers leave their retirement accounts to children, grandchildren or other beneficiaries” while allowing required minimum distributions over the beneficiary’s actuarial lifetime. The House recently passed Setting Every Community Up for Retirement Enhancement (SECURE) Act eliminates the stretch IRA and substitutes 10 years for an actuarial life. The stretch IRA has been available since 1999.
The simplest form of multi-generational planning is the annual exclusion gift, now at $15,000 per year per individual. Gifts by individuals at or below that amount do not require a gift tax return to be filed. On the other hand, retirement plans have more information forwarded to the federal and state governments than is good for taxpayer health and well being. Keeping our two rules of thumb in mind is helpful.
If you or any of your other advisors have questions about the issues raised here, please contact your investment manager or one of us.
William H. Darling, CPA – Chairman & President
Jeanne M. FitzGerald, CPA – Tax Manager
 Journal of Accountancy, March 2019
 WSJ, 7/10/2019