Home » How Should You Get Prepared for the Massive Tax Changes? Insights by William D King

How Should You Get Prepared for the Massive Tax Changes? Insights by William D King

A while back, the House declared the “Build Back Better Act” that followed the intended changes in tax law by Van Hollen and Senators Sanders. However, the Act isn’t final. And each has varied proposals explains William D King. All that is evident is that any of the proposals, when enacted, might have a heavy impact not only on the future plans but also on the current plans that involve annual gifts and trusts.

Even though a few of the proposals were imposed, Van Hollen and a few others suggested that the changes should be implemented soon. It’s essential to act fast when the legislation passes to execute the plans and untie current plans that possess adverse tax outcomes. Also, for the estate planners, one can’t wait until the proposals get finalized, which might be very late. To explain in simple words, it’s best to ensure that the clients get prepared for every potential change and have their plans in hand to manage the changes.

William D King mentions the probable changes and its impact on estate planning

Decline in Estate and the Gift Tax Credit–The transient gift tax credit and the unified Estate, equal to $11.7 million, will revert in 2026 to its earlier credit amount, which got managed for inflation, at $6 million. It’s said that the proposals will drop it to $6 million in January 2022. Making use of the complete $11.7 million credit ensures that the client should gift the complete $11.7 million. It’s because the evaluation on the credit figure is cumulative. It means you will not get the extra credit which is more than $6 million post the effective date.

The way to prepare –A few affluent clients will be able to gift $11.7 million without having any means to get the income from this asset. Hence, one of the best thingsto do is draft trusts where a third party has the broad appointment powers. For making the assets accessible at some point in time.

Modifications to the Gifts in the Trust – William D King says that even though a gift can be outright. A gift as big as the present unified credit will make the majority of clients want to secure assets from the creditors. They would also want to keep it secured from any mismanagement. By the beneficiaries who aren’t experienced and offer specific security net against the forthcoming situations. Where any tax law alters based on the client’s situation. The proposals make essential changes in the way gifts get managed, both from the Estate and the gift tax perspective. It’s also true from the income tax perspective. It is mostly true in the suggested changes in the rules for the Grantor Trust.

Finally, the Grantor Trust rules got developed back in 1960s. It was done to close the problems in the existing tax laws which enables the clients. To make use of the reduced trust income tax rates for a chunk of their earning. The rule says that a trust with specific characteristics should be earned by the client. Who developed the trust, the Grantor. And this problem or gap got addressed and remedied. However, William D King says that it led to other planning processes. For instance client selling the assets to the Grantor type trust. That doesn’t get identified as the income for tax objectives.