What changes in the law for 2018?
CHANGES TO FEDERAL LAWS
THE FEDERAL ESTATE TAX LAW
The new tax law enacted in December has significantly changed the gift and estate tax laws. The law increased the current $5,000,000 estate tax exemption to $10,000,000 indexed for inflation since 2011. This means for those individuals who pass away in 2018, the Federal Estate Tax exemption and the Generation-Skipping Transfer Tax Exemption will be increased by $1,200,000 for a total exemption of $11,200,000, less any portion of the exemption used during the life of the decedent. As a result, for individuals who die in calendar year 2018, the first $11,200,000 of that individual’s estate may be transferred to someone other than a spouse or a qualified charity without Federal Estate Tax or Generation-Skipping Transfer Tax. Estates greater than $11,200,000 will continue to be taxed at the rate of 40% on the excess.
The ability to transfer the unused exemption of a deceased spouse to the surviving spouse continues to be an important benefit under the new law. This concept, which is popularly referred to as “portability,” enables the surviving spouse to increase the amount of wealth to be exempt from tax when the surviving spouse dies. The transfer of the unused exemption to the surviving spouse requires the surviving spouse to file a Federal Estate Tax Return Form 706 on a timely basis when the first spouse dies. Effectively, a married couple has a combined exemption of $22,400,000.
These changes are set to expire in 2025.
THE FEDERAL GIFT TAX LAW
The annual exclusion for federal gift tax law, which is also indexed for inflation, will increase to $15,000 for 2018. That means a person will be able to gift in calendar year 2018 an amount of cash or other assets equal to $15,000 per recipient without incurring any federal gift tax and without the need to file a Federal Gift Tax Return Form 709. Married couples can continue to combine their annual exclusions so that a married couple may give an amount equal to $30,000 in cash or other assets to a recipient.
The lifetime gift exemption has been increased dramatically for 2018. The lifetime gift exemption refers to the total amount of gifts that a person may make during his or her lifetime to someone other than a spouse or qualified charity. Like the Federal Estate Tax Exemption, the lifetime gift exemption increased to $10,000,000 indexed for inflation since 2011, less any amount previously gifted in prior years. Hence, the lifetime gift exemption in 2018 is $11,200,000.
In addition, there continues to be three types of gifts on which there is no limit. The first involves gifts paid on behalf of individuals as tuition to educational institutions. The second involves gifts paid on behalf of a person directly to a medical provider for qualified medical expenses. Certain requirements must be met in order to qualify for both types of gifts, so please do not assume a payment will qualify for these gifting rules without first contacting our office. The final type of gift is a gift to a qualified charity.
INCOME TAX CHANGES
There are significant income tax changes. Because they are extensive, we are inviting a Certified Public Accountant to speak to our clients at the upcoming Quarterly Workshop. Please plan on attending this meeting which we anticipate will be in February.
OTHER TAX NOTES
For most of us the best news is that the changes to the estate and gift tax law do not affect the step-up in basis when a person dies. When a person inherits assets, those assets will continue to have a basis equal to the fair market value at the date of death.
There is no current debate about repealing the estate and gift tax law as the new changes are quite significant to placate the wealthy.
Because most folks are no longer facing a Federal Estate Tax, if you are married your trust may be too complicated. We are amending trusts to either remove what is known as the “A/B” provisions or replacing the A/B provisions with what is known as the Clayton Election. Simplifying your trust may save your spouse money and certainly will save him or her extra tax filings and accounting. If you are married and you want to learn if you should simplify the tax planning in your trust, please call our office. There is no fee for any amendments you may require while you are on our Annual Maintenance Program.
CHANGES TO NEVADA LAWS
The Nevada Legislative Session made significant changes to asset protection and estate planning laws in 2017 which likely will require that you update your planning documents.
ASSET PROTECTION LAW CHANGES
The amount of money in a retirement plan that is exempt from execution or seizure by a creditor was increased from $500,000 to $1 million. This is a significant increase and one that should be welcomed by all (except creditors). So if you have a judgment against you, the first $1 million of money in IRAs, 401(k)s, and pensions plans, to name a few, will be protected. NRS 21.090(1)(r).
The exemption for the “other” category was increased from $1,000 to $10,000. So, an asset that you want to protect but won’t fit into any other category can be shielded if it is claimed under this section. While $10,000 may not seem like much, it is certainly better than the previous law of $1,000. NRS 21.090(1)(z).
A new exemption is created for property transferred pursuant to a powers of appointment granted under a will or trust. This is a powerful provision that protects assets in your trust when you give another person the ability to determine who will be the actual recipient. NRS 111.721(2)(d).
Creditors at the Time of Your Death
In a rare contraction of protection rights for our clients, Nevada now allows your creditors to attack non-probate transfers to beneficiaries. Normally, a creditor can make claims in probate against any assets controlled by the probate proceedings. With the change, the creditor can now attack other transfers such as joint bank accounts, some trust transfers, certain beneficiary designated accounts and other joint property. Transfers made in an Asset Protection Trust are expressly excluded from law. NRS 111.779(8)- (12). Contact our office if you want to ensure that potential creditors claiming against you or your estate cannot attack the inheritance you give to your heirs.
Asset Protection Trusts
The Nevada Supreme Court held in a unanimous decision that Nevada Asset Protection Trusts (“NAPTs”) are not subject to the claims of divorcing spouses or child support payments (“Exception Creditors”). This decision upholds Nevada as the best state to protect your assets even if you are not concerned about Exception Creditors. If the NAPT can protect against Exception Creditors, we can be assured that it can protect against ordinary creditors.
A Life Plan™ trust is not the NAPT. The NAPT is a unique trust formed by some of our clients who want creditor protection in addition to the protection provided by the Life Plans™.
Contact our office if you want to learn more about how to protect your assets from lawsuits.
ESTATE PLANNING LAW CHANGES
Chapter 123 of the NRS was amended to give married couples the ability to transfer property to a trust and have it retain its character as either community property or separate property, as the case may be. This rule puts the burden on the person creating the trust to clearly designate the property as community or separate. Any community property transferred to a trust will be subject to division by the divorce court. NRS 125.150(1)(b). If you are married and you are unsure how your assets are treated, please contact us.
The ability to prevent challenges to your desires (no-contest clauses) will be honored but must now be strictly construed. NRS 137.005(1). You already have no-contest clauses in your documents that conform to this standard. If any of your beneficiaries challenge the amount they receive, they will receive nothing. They may still challenge the way in which the trust is administered. If you have special requests or instructions in your trust or will for how you want to disinherit a family member, you should contact our office to ensure that your wishes conform to this new, higher standard.
Mental Incapacity and Guardianship Fraud
As you may know, in Nevada there was significant fraud perpetrated against the citizens of this state by the Guardianship Court. In Nevada, Conservatorship Court for an incapacitated person is called the Guardianship Court. The for-profit guardian services companies in Nevada were found to be taking advantage of those that were mentally incapacitated, and the judges were in on the scheme. To prevent the court from appointing these crooks (as far as I’m concerned), the law was changed such that we can now exclude for-profit guardians from ever being appointed by the court. To do so, it requires a statement on a new document that must be included in your estate plan and submitted to the state. NRS 159(1) – (2).
If you want to ensure that for-profit guardians never have the chance to take over your life, contact our office, and we’ll provide the document and submit it to the state. We recommend that all our clients make this change.