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What Has Been the Biggest Change in Trusts and Estates Work with Tax Reform?

15 June 2018

(St. Louis Business Journal)

June 14, 2018 (Greg Edwards)

The implications of tax reform are far reaching. We asked two trusts and estates experts what it means for them and their clients.

John Handy, president and CEO, Commerce Trust Co:
“With the 2017 Tax Act, the estate exemption doubled. So each individual can now shelter $11 million, allowing for $22 million per couple to pass before estate taxes are incurred. However, there is a facet of the law that benefits estates of every size, is more impactful now than ever, and has led us to review every clients’ estate plan. This is related to the step-up in income tax cost basis that all heirs receive when an asset is transferred to them through an estate.

“There are plans we helped create just five or 10 years ago that were well purposed and expertly constructed to avoid significant estate taxes. Under the new laws, these plans may not deliver the same benefit. Several common planning techniques used may result in higher income taxes from a lost or reduced basis step up. In most cases, there are ways that this can be improved through distributing low cost assets, swapping assets or making adjustments to the plan. In these cases, action today is likely necessary.”

Matt Wagner, president, Parkside Financial Bank & Trust:
“One of the biggest changes is helping our clients take advantage of the recently increased estate tax exemption, now at $11.18 million. No one knows exactly how long this exemption will remain at this level. As a result, we are having frequent conversations with our clients about the best tailored approach for their goals. The new estate tax law has essentially provided an untapped opportunity to use when increasing gifts to an existing strategy or to examine, maybe for the first time, the idea of gifting to family during life.

“In addition, we are giving increased attention to the income tax implications of an estate plan as opposed to focusing narrowly on the estate tax. Since we still receive a step-up in tax basis for assets included in an estate, it may be advisable to rethink funding irrevocable trusts that do not receive that same step-up at death (transferring them to another trust to achieve a step-up.)”

John Meara, president, Argent Capital Management, discussing the market at an investor lunch June 8:
“Volatility is at the low end. Volatility is normal. Volatility will stick around. Volatility isn’t all that bad.”