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Guest view: New tax law offers opportunities to transition wealth

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Thomas J. Taricani, principal at accounting firm Boyer & Ritter LLC
Thomas J. Taricani, principal at accounting firm Boyer & Ritter LLC - (Photo / )

New estate planning opportunities created by the Tax Cuts and Jobs Act of 2017 makes now the perfect time to consider a lifetime transfer of wealth to your heirs.

Even if you’ve recently updated your estate plan, you should ensure you’re taking advantage of the act’s new opportunities. The beneficial changes hit at a convenient time: Baby boomers will transition enormous amounts of wealth in the next 15 years, including 60 percent of privately held businesses.

Two significant provisions of the law impact how baby boomers prepare to transfer their estate:

First, many businesses benefit from a 20 percent income tax cut on qualified business income. Second, the individual federal estate exclusion doubled to $11.2 million for individuals and $22.4 million for married couples.

Depending on your circumstances, conferring some of your wealth as gifts during your lifetime may be more beneficial to your heirs than having everything transferred as part of your estate plan.

Five considerations

Comprehensive estate planning begins with a readiness assessment that examines the five following considerations:

  1. I know the location of my key documents and have recently reviewed terms with my decision makers.
  2. My family and heirs understand what financial support they can expect.
  3. I have reviewed my estate planning in light of the tax law.
  4. My heirs are prepared to deal with the consequences and responsibilities of managing their inheritance, or arrangements are in place to assist.
  5. I have made my philanthropic desires clear in my planning.

If you didn’t answer yes to all of the above, consider this a nudge to update your estate plan.

Benefits of gifting

The incentive to consider gifting a portion of your estate can be significant.

For 2019, the new tax law keeps the annual exclusion amount for gifting at $15,000 annually and more than doubles the total allowable amount of gifts from $5 million to the exclusion amount of $11.4 million for an individual (or $22.8 million for couples).

Under the new tax law, heirs will continue to benefit from the stepped-up in tax basis when inheriting qualified stocks, real estate and other capital assets despite the increased exclusion. For tax purposes, these assets passing through a decedent’s estate are generally valued at the fair market price at the date of death – meaning heirs avoid paying income tax on the appreciation and can enjoy significant benefits under the new 20 percent income tax cut for qualified business income with the basis adjustment.

Preserving wealth

It is especially important for high-net-worth families to create a wealth-transfer plan spelling out asset management and the disbursement of financial support. This is particularly true for sur-viving spouses who may remarry and bring a second “family” into the equation. We recommend integrating this legacy plan with your written estate plan and having a family council to discuss it with your heirs.

We also recommend a family philanthropy plan to ensure your charitable goals and objectives continue. Establishing a charitable foundation or family council that meets periodically and ad-dresses the allocation of invested assets can provide a way for heirs to work together for a common goal and preserve a sense of a family mission.

For how long?

It’s important to remember that under the tax law, the increased estate exemption and the additional 20 percent tax deduction for pass-through income will sunset on Jan. 1, 2026. Whether these exemptions and deductions will continue will largely depend on who occupies the White House and controls Congress.

A CPA or financial professional can help assure your estate plan takes advantage of all the benefits under the Tax Cut and Jobs Act and increase the likelihood of a successful transition of wealth.

Thomas J. Taricani is a principal at accounting firm Boyer & Ritter LLC, which has offices in Camp Hill, Carlisle, Chambersburg and State College. He can be reached at 814-234-6919 or ttari-cani@cpabr.com.

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