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Major Estate Tax Changes Are Still Around The Corner

What do you do when the Go-To Strategies just won’t cut it?

The Federal Lifetime Exemption is the total amount of wealth that you can give away tax-free in your lifetime. Importantly, it is the giver, not the recipient, who is responsible for the taxes. While President Biden’s proposal to reduce the Lifetime Exemption in 2022 is now off the table, the need to plan for a reduction to the Lifetime Exemption has not gone away. The Tax Cut and Jobs Act (TCJA), passed in 2017, has a sunset provision for the current Lifetime Exemption levels, which will revert them back to pre-TCJA levels, effectively cutting the Exemption in half from $11.7M per individual in 2022 to ~$6M in 2026.  Taxpayers expecting to be impacted should be preparing to implement all strategies available to them to shrink future tax bills. An alternative to the more traditional gifting strategies, and one that offers a great opportunity to take action in advance, is the Grantor Retained Income Partnership (GRIP).  A GRIP may be the optimal strategy for taxpayers who face obstacles presented by other approaches.

Timing Matters

At RegentAtlantic, we have been recommending planning strategies, ranging from outright gifting to Trust Funding in order to utilize the Lifetime Exemption before it resets back to pre-Tax Cut and Jobs Act levels. For  individuals and families with taxable estates, these strategies can save millions of dollars from estate tax. Under current law, the reduction to the Lifetime Exemption is set to begin in 2026, however, executing these strategies now can result in more tax savings than waiting until 2025.

Spousal Lifetime Access Trusts (SLAT)

We’ve suggested Spousal Lifetime Access Trusts (SLAT) as an excellent solution to lock in the current, elevated exemption levels. Clients gravitate towards this strategy as it’s an easy way to use up exemption levels without giving up control/access to the Funds (albeit indirectly). While this is one of our go-to estate planning strategies, there are a couple situations where this strategy is either impossible to execute or you are potentially swapping one tax bill for another.

The first is with respect to non-married individuals. A Spousal Trust requires a spouse! The second pertains to the loss of the Cost Basis Step-Up upon death for assets gifted to a SLAT. While the SLAT shields assets from Estate Tax, the underlying assets will not get a Basis Step-Up upon death. This can lead to reluctance from a Grantor who wants to utilize the SLAT strategy but would need to gift appreciated assets to do so. With these imminent changes upon us, there is a lesser-known strategy, that if executed prior to legislation date, can act as a solution to this predicament.

Overcoming the SLAT obstacles: Grantor Retained Income Partnership (GRIP)

For families/individuals that find themselves in either of the prior two situations, and are looking for a way to take advantage of upcoming estate tax changes without giving up control/access of the funds, there is another planning strategy that can accomplish this objective. A newer strategy, those in the industry are referring to it as a Grantor Retained Income Partnership (GRIP). The GRIP achieves the following:

  • Utilize Federal Lifetime Exemption before it resets
  • Retain control and have access to the funds, if needed
  • Provides cash flow back to the Grantor (can be used to satisfy lifestyle needs/expenses)
  • Assets contributed will receive a Cost Basis Step-Up at Grantor’s death
  • No spouse needed

If you are interested in learning more or seeing if a Grantor Retained Income Partnership fits with your situation and financial plan, please contact your RegentAtlantic Advisor.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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