This year’s client letter is later than usual because estate planning federal law has been relatively constant; however, I can’t say the same for state estate law. State laws have been in flux with exciting and innovative new laws that allow estate planning greater flexibility. Now that fall has arrived,
we begin the endless cycle of commercials, political ads, and debates to address the social and political issues of our time and the future; 2024 is more likely to show us the estate planning hand. Our job as your estate planners is to keep an eye on the proposals being presented on federal and state levels and help you to be prepared and protected. I recommend taking full advantage of the current estate tax laws, and enjoying the finer things in life, good health, time spent with family and friends, making new memories, a great meal, or a trip. If there is anything I have learned, it's that change is inevitable, and we all must plan for the unexpected.
The estate tax and individual tax provisions will expire in 2026, if not sooner. For planning purposes, we estimate that the estate tax exemption will be cut in half to about $7 million in 2026. But meanwhile, in 2024, the federal estate and gift tax exemption will increase based on the inflation rate (let’s assume a 5% inflation rate) to approximately $13.5 million per person and $27 million per married couple.
In March of this year, the Biden Administration released its proposed budget for fiscal year 2024, calling for an increase in federal spending and offsetting revenue raisers. One proposal is preventing excessive wealth accumulation by high-income earners using their tax-favored retirement accounts. The proposed rule would impose special distribution rules on high-income taxpayers with large account balances. Should an account hold more than $10 million, it would have to distribute at least 50%, and if the account balance is more significant than $20 million, it would be subject to a floor. Even if passed, this will only affect a few individuals and require them to pay income tax sooner on their retirement account balances.
Another proposal would require reporting on trust value. While domestic trusts file an annual income tax return, they do not report the nature or value of the trust’s property and accounts. Because of this, statistical data is unavailable for the administration to develop tax policies and compliance with applicable statutes and regulations. This reporting could include the name, address, and taxpayer identification number of each trustee, each beneficiary, and general information about the nature and estimated total value of the trust account.
Other proposals include modifying the tax rules for certain trusts and eliminating the requirement that gifts must be of a present interest to qualify for the gift tax annual exclusion, modifying the tax rules on loans from a trust, and others. We can’t predict if these proposals will come to fruition, but we are carefully monitoring to ensure you are protected should Congress act. When a President submits a proposed budget, it is viewed as an invitation to begin policy debates with Congress. Many people feel the proposed 2024 budget is “dead on arrival” due to discord between congressional Democrats and Republicans and that the chance of most proposals becoming law is remote. However, the budget still serves as an indicator of the current administration’s goals and agenda. It's essential to stay abreast of the latest proposals and discuss with your financial advisors and us about how they may affect you and your financial and estate planning.
Continue to take advantage of the gift tax annual exclusion rate. This allows you to give to as many people as you want each year, with none of the gifts being subject to a gift tax. You may make gifts of $17,000 per person per year. Consider funding 529 Plans for current or future children or grandchildren. Ensure your estate plan is current to account for changes in local laws and your family and assets.
The most significant changes have occurred in Maryland. First, Maryland is adopting a “decanting” statute. This means that an irrevocable trust can be “decanted” into a new irrevocable trust. This provides one more tool that can be used when someone is a beneficiary or trustee of an outdated trust with provisions that do not account for current trust or tax rules. Second, Maryland is also changing its rules about inheritance taxes for domestic partners. If individuals plan correctly, their domestic partner can inherit their assets with no inheritance tax.
The new CTA passed by Congress goes into effect on January 1, 2024, and will require all small businesses to file a Beneficial Ownership Information report (BOI) with the Financial Crimes Enforcement Network, otherwise known as FinCen. This new law is intended to combat money laundering, the financing of terrorism, tax fraud, and other illegal activities. A beneficial owner exercises control over the reporting company or owns at least 25% of ownership interests. The electronic report must include full legal name, or doing business as, complete street address, jurisdiction of formation, and taxpayer identification number. A new company formed in 2024 must file within thirty days, and for existing small businesses, the report must file by January 1, 2025. This is a significant new hurdle for owners and managers of small businesses, and we highly recommend that our clients who are subject to this new law gather their information and speak with their tax, estate, and business law team.
Our population is aging. According to the Alzheimer’s Association, one in three seniors suffers from Alzheimer’s disease or another form of dementia at death, and over six million of the growing elderly population are living with some age-related cognitive decline. This number is projected to balloon by 2050. The recent pandemic has also brought attention to the need for a Will, Power of Attorney (POA), and Advanced Medical Directive. Anyone who owns an asset needs a POA if something happens that leads to temporary or permanent incapacity. Everyone needs an Advance Medical Directive. Most people should have a Will to avoid family fights and to be clear about who is inheriting what.
The Frost Law team has enjoyed another stellar year of client successes. Clients with tax or business matters have improved access to understanding how a well-crafted estate plan can be a crucial lynchpin for preserving individual and family wealth.
We have formulated hundreds of plans to preserve clients’ assets best and minimize their overall tax obligations. Despite the certainty of taxes being due each year, the ever-changing requirements for international and domestic tax obligations continue to create controversies for our clients' finances.
The Frost Law team continues to provide excellent services in the area of tax planning, tax controversy, and business law. Additionally, throughout the year, we have provided hundreds of eligible business owners who retained employees during the pandemic, with business-saving assistance and counseling in the pandemic-era payroll tax relief credit known as the Employee Retention Credit (ERC). The ERC is still available to eligible businesses, but the clock is ticking. Our team dispels the myths, offers complementary second opinions (which may temper overly aggressive positions or find missed credit amount opportunities), and at all stages, adeptly maneuvers within the complexity of the relief provisions so eligible business owners may accurately and appropriately claim refunds as Congress intended.
Each client’s priorities are always unique, and our attorneys are pleased to share our knowledge with individuals and business owners uncertain about their tax obligations.
My priority is to continue serving you and your loved ones for years. Our merger with Frost brought additional legal capabilities, lawyers, and support staff. We work hard to resolve your legal matters and send documents to you quickly and efficiently. Nothing has changed inside the office besides a few new faces: Brittnae Jones, administrative Assistant; Sydney Helsel, Attorney; Elizabeth Green, Paralegal; and Katherine Ruesch, Senior Attorney. For those of you who have known and worked with Melissa Aitken, Director of our Probate department, she is on a leave of absence after an accident. We look forward to welcoming her back upon her recovery.
Please be specific when scheduling your appointments and reference the office you wish to visit. We are holding Zoom calls for existing and new clients, which has dramatically picked up, but we still ask that clients come to the home office to sign their documents and have them witnessed.
We should have your most current information, so please visit our website at altmanassociates.net to update if you have moved or call us at 301-468-3220. For those of you savvy in social media, we invite you to connect with us on our firm’s blog, Facebook and Linked In, and for those inclined, we would greatly appreciate reviews.
The pandemic of 2020 and 2021 may have passed, but significant impacts on life have made many of us reflect on what matters most. Recent times have shown the importance of preparing for the unexpected and keeping your affairs in order. Before the pandemic, many individuals and families were uncomfortable discussing one’s estate. Since the pandemic, we are seeing families that are more motivated to have estate planning conversations. Another essential consideration is family harmony. There are effective ways to have conversations in advance with your loved ones and set them up for a smoother transition when the time comes.
Keep current with your documents and have them reviewed every four years or whenever there is a significant change to the family dynamic. We will send you a reminder letter when you are due for an update.
The Frost Law and Altman & Associates team remain grateful to all of you for your continued support and trust in our services, and I am always available to take your phone call or a meeting to answer questions.
Gary Altman, Partner.