2024 Legal Updates
Modern Wealth Law is committed to providing our clients with comprehensive, up-to-date legal services. As part of this commitment, we have prepared the following summary of legal developments and strategies that can help you align your estate plan with the current legal framework.
Portability and the estate tax exemption: The 2024 estate tax exemption is $13.61 million per person (i.e., $27.22 million per couple). This exemption significantly increased in 2017 and has been indexed for inflation each year since. However, the exemption is expected to decrease in 2026 to approximately $7 million per person. Recent planning techniques take advantage of the temporarily increased exemption while still maintaining access to wealth.
The estate tax is doubled for married couples who elect portability, an election that allows the transfer of the deceased spouse’s unused exemption to the surviving spouse. Portability eliminated the need to divide the trust at the first spouse’s death (commonly referred to as an AB or ABC trust). Moreover, as of 2022, the IRS allows a surviving spouse to elect portability for up to 5 years after the deceased spouse’s death, giving the surviving spouse more flexibility and avoiding unwanted administration. Older trusts should be revisited to determine whether trusts include AB or ABC provisions and whether such division is necessary given the couple’s desired level of control and need to adjust the cost basis of assets.
Retirement Planning: The SECURE Act of 2019 (updated in 2022) significantly affected retirement planning by making it less desirable to transfer wealth through 401(k)s and IRAs. Pre-SECURE, the entire balance of your retirement account can be withdrawn over a spouse or child’s lifetime. The SECURE Act now requires the entire balance of your retirement account to be withdrawn within 10 years of the death of the original owner for certain beneficiaries. It is often advantageous to name trusts as beneficiaries of your retirement account, but trusts should be updated to maximize the tax deferral and control of your retirement accounts under the new SECURE regime.
Beneficiary Deemed Owned Trusts and Dynasty Trusts: Dynasty Trusts are often incorporated into trusts as a wealth preservation tool for future beneficiaries. Dynasty Trusts can help protect your beneficiaries in the event of a lawsuit and divorce. Moreover, they are often designed to avoid estate taxes when the assets in the trusts are transferred to future generations. The concern with Dynasty Trusts was the need to distribute the income each year to the beneficiary to avoid the compressed tax rates for trusts. However, with a Beneficiary Deemed Owned Trust (“BDOT”) we can have the wealth preservation of a Dynasty Trust and the income tax rates of an individual without distributing the income. This not only reduces taxes but also simplifies tax filings. Of course, with any new type of planning, there is a concern with future IRS rulings that could be detrimental to the strategy. Nevertheless, we believe this strategy makes sense for most of our clients and trusts should be updated to incorporate BDOTs.
Trust Protectors: A Trust Protector is someone who has powers beyond that of a Trustee. Recently, Trust Protectors have been given the power to modify trusts after your death to reflect changes to the law (similar to those described above) or facilitate administration. The Trust Protector would not have the authority to change your intended beneficiaries of the Trust. We often give our law firm the power, with your permission, to name a Trust Protector in the event one is needed in the future. This can reduce the need for court intervention and higher costs of administration.
Corporate Transparency Act. Those with interests in corporations, LLCs, limited partnerships or other similar entities will likely be affected by the new federal Corporate Transparency Act (CTA). Beginning January 1, 2024, the CTA requires “reporting companies” to disclose information on the company itself as well as “beneficial owners” of the company. Beneficial owners are those who exercise “substantial control” over the company OR who “owns” or “controls” at least 25% of the “ownership interests” in a reporting company. Accordingly, if you organized an LLC in any US state to hold rental property, for example, you have a reporting company, and if you own more than 25% of the LLC, you are a beneficial owner subject to the CTA reporting requirements. The report must include the beneficial owner’s full name, date of birth, current residential address, and an “identifying number” and “image” from a US document (e.g., US passport, Driver’s License, US identification card). Penalties for willful failure to comply are severe – $500/day up to $10,000 or up to 2 years imprisonment.
Modern Wealth Law’s commitment to our clients include the incorporation of the latest planning strategies to maximize tax efficiency, minimize administrative burdens, and optimize flexible planning opportunities. Contact us if you have any questions about updating your estate plan.
Tiffany K. Chiu is a Partner at Modern Wealth Law, APLC. Tiffany is a skilled bilingual (Mandarin and English) estate planning attorney who caters to the needs of individuals, families, and small business owners in Orange County. She has extensive experience in drafting documents related to formation, financing, reorganization, conversion, and dissolution of joint ventures, partnerships, limited liability companies, and corporations.
