Estate planning as part of the interview with Form 1040

When interviewing clients this tax season, despite the obvious focus on income tax, keep in mind the importance of estate planning, as it can benefit both you and the customer.

For example, there may be benefits to lifetime transfers to take advantage of the current transfer duty exemption, but there are also considerations based on income tax (see also the “Checklist for working with a deceased’s estate” by the author,, 5/19/21). The focus here is on a multitude of concise topics with the aim of uncovering customer needs and possible areas of interest. Our story can be a short discussion or even Q&A style.

Overview of inheritance and gift tax

The exemption from gift and inheritance tax is currently generous. The 2022 gift and estate tax exemption is $12,060,000 or $24,120,000 for a married couple.

After 2025, the exemption should revert to an estimated amount of approximately $6,200,000 adjusted for inflation or an estimated $12,400,000 for a married couple. The highest tax rate is 40%.

Exemption amounts used against lifetime gift tax reduce the amounts available against transfers upon death. The IRS has confirmed that people who take advantage of the enhanced exclusion amount available for 2018 through 2025 should not be affected when exemptions return to pre-2018 levels, adjusted for inflation. The 2022 annual gift tax exclusion is $16,000 while the 2021 exemption was $15,000.

  • Keep in mind donation splitting, which doubles the exemption per donor
  • Exemption applies to gifts of current interest
  • Basic tax planning includes the use of the annual gift tax exclusion
  • Gifts exceeding the annual exclusion begin to benefit from the exemption
  • Direct payments for medical care and education are subject to special exemptions

Marital rules

Portability, when chosen, allows a surviving spouse to access the unused exemption amount of the predeceased spouse. Here you need to ask the client:

  • Any wedding gifts to discuss or consider when planning?
  • Should marital gifts be provided to clarify or modify ownership from an administrative or fiscal point of view?
  • Does the estate plan include AB trusts?
  • Are there qualified domestic trusts (QDOT) in the estate plan?

General planning

The questions here should be:

  • Are estate planning documents in place and up to date? (This includes wills, trusts, powers of attorney, medical powers of attorney)
  • Are there any health issues for either spouse that might affect our planning options?
  • Gifts to children or grandchildren to discuss?
  • Should either spouse (or both spouses) consider out-of-wedlock transfers during life or upon death?
  • Do you intend to move to another state with transfer tax provisions?
  • International implications on family assets or relationships?
  • Are there important basic issues that affect planning?

Consider discussing considerations for controlling and managing assets after death. Ask if there is life insurance in place and also discuss life insurance in estate planning.

  • Are there any pending or potential disputes that could affect the estate plan?
  • Is estate liquidity an issue?
  • Should low-interest loans within the family be considered as a vector for reducing values ​​subject to transfer duties?
  • Are there any unusual or difficult to value assets that affect the estate plan – works of art, bitcoins, entities created for self-insurance purposes, Section 1202 stocks, investments in qualified opportunity areas , foreign real estate?
  • Are there any loss or credit carryover issues that can expire on death?
  • Business or investment assets with a significant unrealized loss?

Some practitioners may also wish to discuss asset protection planning with the client.

Business or Agricultural Interests/Entities

  • Are there partial interests in farms or real estate with family, friends or others, and if so, what assets?
  • Trusts are subject to relatively high income taxes, except distributions, but they can improve asset management. Trust design options are varied. Are there any trusts that benefit the taxpayer or other family members?
  • Are there any QTIP trusts in the estate plan?
  • Should grantor-retained annuity trusts (GRATs) be considered as a possible means of reducing transfer taxes?
  • Have circumstances changed in such a way that the organizational structure of the business (partnership, S corporation, C corporation) needs to be reviewed, especially considering the long term and ownership after death?
  • Are valuation reduction strategies in place or should they be considered?
  • Should the family limited partnership be considered as a control and value reduction vehicle?
  • Is farm valuation a problem? for example, a family member who continues to operate as a farm may have tax considerations
  • Can the estate qualify for an extended inheritance tax payment due to small business interests?

Also find out if there are any business “exit planning” issues with estate planning elements; for example, bringing children into the management and/or ownership of the business, tax-free merger, sale of private business interests to employees or others.

Charity planning

The charitable inheritance tax deduction is unlimited. Lifetime charitable transfers can save income tax and inheritance tax. Should charitable provisions be considered to reduce or avoid inheritance tax? Also:

Is asset selection a charity planning problem? For example, should charitable donations of long-term, highly valued listed stocks be considered? In addition, should the following types of charitable vehicles be considered in life or estate planning:

  • Charitable remainder trusts
  • Charitable master trusts
  • Private foundations
  • Donor Advised Funds
  • Gifts of Residual Interest in Personal Residence
  • Conservation easements

Prospects for significant change

Weighing the current rules against the future tax environment is one of the most difficult aspects of planning. President Biden has generally advocated for reduced estate tax exemptions and better taxation of the wealthy. However, as we enter March 2022, the focus on new tax legislation is somewhat reduced due to lack of congressional agreement on direction or specifics.

In general, one would expect President Biden’s emphasis to return in the near future, although it is quite uncertain if and when this will result in an increase in transfer taxes. It seems unlikely that an increase in transfer duties will be retroactive. However, effective dates for transfer tax increases may be announcement dates rather than eventual enactment dates.

Another important planning issue, of course, is the planned reduction in transfer tax exemptions after 2025. Ultimately, asking these kinds of questions during tax time may indeed lead to other benefits for your clients and your company.

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