Tax Update December 2019
Trusts & Estates
Vermont Estate Tax Exemption Increase
This year the Vermont estate tax laws changed and the Vermont estate tax exemption will increase from the current $2.75 million to $4.25 million on January 1, 2020 and to $5 million on January 1, 2021. If you are a resident of Vermont or own real property in Vermont, we recommend that you contact us to revisit your estate plan as you may be able to simplify your documents.
Effect of the Increasing Exemption on Your Estate Planning Documents
We recommend that you review your current will and trust to determine whether any changes are necessary as a result of the increase of the Vermont estate tax exemption. For example, if the value of your estate is less than $4.25 million in 2020, and less than $5 million by January 1, 2021, your estate may not be subject to the Vermont estate tax and may no longer need some or all of the tax planning provisions and trust provisions that may be part of your current estate planning documents.
We also recommend you review your beneficiary designations for life insurance policies and retirement accounts as well as the ownership of life insurance policies, including irrevocable life insurance trusts, to determine whether such designations are still appropriate.
Exemption Amount Planning
If you have an estate plan designed so that at your death a gift equal to the then-applicable estate tax exemption amount is left to specific beneficiaries, you may wish to reconsider this structure in light of the fact that the Vermont estate tax exemption amount is increasing. Estate plans that link the value of any specific gift to the Vermont exemption amount could result in a distribution of your estate that is no longer in accordance with your intentions. Accordingly, if you have this type of estate plan in place, please contact us to review your estate plan with you to determine whether revisions are appropriate.
Equalization of Assets
For Vermont couples to take full advantage of the increased Vermont estate tax exemption, one spouse may need to transfer assets to the other spouse. Please note that transfers between spouses who are not both U.S. citizens or between persons who are not married may result in adverse gift tax consequences. We would be glad to advise you how to avoid these consequences.
Federal Estate Tax Laws
The Federal estate tax laws did not change during 2019. As a reminder, please note the following:
- In 2018 the individual exemptions for federal estate, gift, and generation skipping transfer (“GST”) taxes doubled from $5,000,000 (the exemption amount established in 2011) to $10,000,000, but only for the years 2018 through 2025. The exemptions are indexed for inflation. Therefore, for 2019, the exemption amounts are $11,400,000 per individual and increase to $11,580,000 on January 1, 2020.
- Federal estate tax exemption “portability” was retained, so a surviving spouse can still use a deceased spouse's unused federal exemption, provided that an estate tax return is filed and the portability election is made for the estate of the deceased spouse. Portability continues to have a number of limitations. For example, the GST tax exemption is not portable and portability is currently not available for state estate tax purposes.
- The federal gift, estate, and GST tax rates remain at 40%.
- The annual gift tax exclusion remains at $15,000 for 2020.
Summary and Next Steps
In summary, we encourage you to review your current estate plan and to contact us if you determine that changes may be needed whether as a result of the increasing Vermont estate tax or other personal, financial or other changes that have occurred since you last updated your estate plan.
We welcome the opportunity to talk with you about the implications of the tax changes on your estate plan. We also welcome the occasion to discuss other estate planning considerations such as:
- Planning for the disposition of your assets at your death;
- Asset protection planning;
- Planning for disability and incompetency;
- Business succession planning;
• Charitable giving;
- Retirement planning;
- Planning for children with disabilities;
• Planning for spendthrift children;
- Planning for clients with real estate in more than one state, including ownership, state income taxation,spousal rights, and probate issues (in addition to state estate tax);
- Planning for clients who are U.S. citizens or residents who own property in other countries or may receive inheritances or gifts from family members who are not citizens or residents of the U.S.;
- Planning to pay education expenses, including contributing to I.R.C. §529 plans; and
- Identifying potential guardians for minor children.