He was a pillar of the community, and generously contributed his talents as an attorney and astute businessman to a long list of civic organizations, including past service as President of the University of Central Florida Knights Boosters, Director of the Central Florida Red Cross Chapter, Board Member of the Central Florida Zoo and Trustee of his undergraduate and business school alma mater, the University of Pennsylvania. Tom’s service also included deep involvement in his church, the Catholic Church of St. Luke, where he served as a Senior Warden and as a trustee of the church’s endowment fund.
Admitted to the Florida Bar in 1975, Tom was a law school graduate of Florida State University. He worked primarily in the area of housing finance law and assisted numerous government agencies with their community development. His legal practice was one of complete service to his clients and he was known as a “resilient listener”. He will be greatly missed by many in the legal and business community, especially the people of ShuffieldLowman where he practiced law for more than 13 years.
Congress recently passed the Tax Cut and Jobs Act (“TCJA”) earlier this year, the largest revision to the tax code in thirty (30) years. Among the many changes are significant increases in the Estate, Gift, and Generation-Skipping Transfer (GST) tax exclusion amounts. In effect, this means that fewer families will be subject to such transfer taxes and that many estate plans will need to be updated to properly address the new law. The changes under the TCJA present an important opportunity for high net-worth individuals and families to review their current estate planning documents and ensure that their plan is properly tailored to achieve their goals.
Overview of Changes
The most significant change is the doubling of the unified Estate and Gift tax exclusion amount – the combined amount that individuals can give away during life or at death before paying transfer taxes – from $5.59 million to $11.18 million per person. The new tax law also preserves “portability,” a surviving spouse’s ability to retain any estate or gift exclusion unused by a deceased spouse, meaning that for married couples, the exclusion is effectively $22.36 million. This exclusion is inflation adjusted, but current law provides that this doubled exclusion sunsets December 31, 2025, after which estate taxes are slated to revert to current levels.
The new law also increases the amount each person can make exempt from the GST tax. As with the estate and gift tax exclusion, the new GST exclusion will increase from $5.59 million to $11.18 million per person (in 2018 as indexed for inflation). Unlike with the estate and gift tax, however, there is no “portability” for GST taxes. Thus, each spouse must use their own GST exclusion before they pass.
In addition to the changes made by the new tax bill, 2018 also brings a routine increase in the annual exclusion from the Gift tax to $15,000 per person, per year. This annual exclusion allows each individual to make a gift of $15,000 to any other individual (and in some cases trusts) without reducing their lifetime Estate and Gift tax exclusion amount.
Review of Your Estate Plan
The changes in the Estate, Gift and GST tax law mean that many estate plans should be revised to take advantage of tax changes, ensure existing tax formulas still achieve the intended results, or simplify complex planning that is no longer necessary and shift a focus towards income tax planning for beneficiaries. There are also certain planning opportunities that you may want to explore.
First, the increased exclusion amount may be an opportunity to unwind complex planning that may no longer be needed to minimize transfer taxes. For instance, many estate plans created under assumptions of prior law provide that at the death of the first spouse, the deceased spouse’s assets are divided into two (2) separate trust shares: a Marital Trust for the benefit of the surviving spouse and a Credit Shelter Trust that may benefit the surviving spouse, your children and/or grandchildren, or combinations of those people. For married couples with large estates, this technique defers payment of any Estate tax until the passing of the second spouse. The trade-off is that the Credit Shelter Trust may not benefit the surviving spouse solely and the income tax basis of the Credit Shelter Trust is locked into place upon the first spouse’s death. Many couples who used such techniques to minimize Estate tax prior to the new increased exclusion amounts will prefer for the surviving spouse to retain greater control of assets and plan for the remainder beneficiaries to receive a step-up in income tax basis for all of the assets upon the surviving spouse’s passing. ShuffieldLowman can assist you with weighing that control over the asset protection and the certainty of the Credit Shelter Trust to determine what is best for each family.
As mentioned above, another scenario involving Marital and Credit Shelter Trusts may play out in other plans containing “formula gifts.” Certain estate plans leave assets up to the Estate tax exclusion amount to a Credit Shelter Trust for the benefit of children or grandchildren and leave assets in excess of that amount to a Marital Trust for the benefit of the spouse. Because the Estate tax exclusion amount is now so large, this could mean unintentionally disinheriting the spouse and leaving all assets to the Family Trust or just leaving significantly less to the surviving spouse than intended.
Next, we do not know if the federal increased exclusion amounts will not be extended and will in fact expire in 2025, which is what the TCJA provides. Under a subsequent administration the exclusion amounts may even return to the lower levels of the past that existed for most of the 2000s. If either of these events does indeed occur, then the current increase in the exclusion amounts provides a temporary, “use it or lose it” opportunity to transfer assets outside your taxable estate, thereby “locking in” the current exclusion amount before it is reduced and freezing values from future appreciation. This estate tax planning might involve increased contributions to Irrevocable Trusts such as Irrevocable Life Insurance Trusts, Intentionally Defective Grantor Trusts (IDGTs), sales to these types of trusts, forgiveness of intra-family promissory notes, or other wealth transfer vehicles. You may want to consider further planning using the increased exemption amounts to remove assets from the estate.
Finally, some clients may even wish to use the increased exclusion amount to unwind prior planning and bring assets back into their gross estate to obtain a step-up in basis in those assets to fair market value at the time of their death. This type of planning is geared toward reducing income tax liability of your beneficiaries upon the sale of the inherited assets.
These are just a few examples of the many ways in which the TCJA may affect your estate plan. The TCJA makes significant changes to the Estate, Gift and GST tax regimes. If your estate plan was implemented under previous law, it would be beneficial to review your plan to ensure it accomplishes your current goals in light of these changes. If you would like a comprehensive review of your estate plan, contact ShuffieldLowman today.
ORLANDO, FLORIDA – ShuffieldLowman recently announced that attorneys Loren M. Vasquez and Shaun A. Rechsteiner have joined the firm, working in the Orlando office.
Loren M. Vasquez practices in the areas of commercial, civil, and fiduciary litigation. He is a former law clerk to the Honorable F. Rand Wallis of the Fifth District Court of Appeal where he analyzed briefs and records, drafted comprehensive legal memoranda, and assisted with the authoring of opinions.
Vasquez received his J.D., cum laude, from Florida A&M University College of Law, where he served as Editor-in-Chief of the Law Review. During law school, he worked as a Certified Legal Intern at the State Attorney’s Office in Orlando, an intern with the Public Defender’s Office in Tavares, Florida, and a judicial extern for the Honorable Gregory A. Presnell of the U.S. District Court for the Middle District of Florida. Vasquez received his B.A. in English, cum laude, from Florida State University, and is a member of The Florida Bar and the Orange County Bar Association.
Shaun A. Rechsteiner practices in the areas of commercial and fiduciary litigation, including director and officer liability, business torts, fraud claims, shareholder appraisal actions, breach of contract, breach of promissory notes, as well as probate and trust work, to name a few. Prior to joining ShuffieldLowman, Rechsteiner worked at another civil litigation firm in Orlando.
Rechsteiner received his J.D., cum laude, from the University of Notre Dame School of Law where he served as the Development Editor of the Notre Dame Journal of Law, Ethics & Public Policy and as a Senior Editor of the Notre Dame Journal of International & Comparative Law. He received a B.S., cum laude, in political science and a B.S.B.A., cum laude, in human resources management from Central Michigan University. Rechsteiner is a member of The Florida Bar and the Orange County Bar Association’s Young Lawyers Division.
ShuffieldLowman’s four offices are located in Orlando, Tavares, DeLand and Port Orange. The firm is a 45 attorney, full service, business law firm, practicing in the areas of corporate law, estate planning, real estate and litigation. Specific areas include, tax law, securities, mergers and acquisitions, intellectual property, estate planning and probate, planning for families with closely held businesses, guardianship and elder law, tax controversy – Federal and State, non-profit organization law, banking and finance, land use and government law, commercial and civil litigation, fiduciary litigation, construction law, association law, bankruptcy and creditors’ rights, labor and employment, environmental law and mediation.