Publications

2023 Family Wealth & Tax Planning Update

Dear Clients and Colleagues:

This letter discusses major planning issues related to recent estate and gift tax developments.  Specifically, this letter provides updates related to estate, gift and generation-skipping transfer taxes and the extension of time to file a portability election. Moreover, this letter also highlights key aspects of Setting Every Community Up for Retirement Enhancement 2.0 (“SECURE Act”) expanding on the prior SECURE Act passed in 2019, and the Corporate Transparency Act (“CTA”). Note that there have been many changes, and only through individual consultation can we adequately assess how these changes may impact a specific client’s situation.

Estate, Gift and Generation-Skipping Transfer Taxation

The Tax Cuts and Jobs Act of 2017 (the “2017 Act”) doubled the estate tax, lifetime gift tax and generation-skipping transfer (“GST”) tax exemptions beginning in tax year 2018. Exemption amounts will continue to increase with yearly inflation adjustments through tax year 2025, at which time the exemption amounts will revert to pre-2018 amounts. The 2017 Act maintained the 40% estate tax, gift tax and GST tax rates for amounts above the exemption. The 2017 Act also preserved the stepped-up basis treatment of assets at date of death.   

The new transfer tax exemptions for 2023 are as follows:

  • $12,920,000 federal estate tax and lifetime gift tax exemption (increased from $12,060,000 in 2022)
  • $12,920,000 GST tax exemption (increased from $12,060,000 in 2022)
  • $17,000 annual gift tax exclusion (increased from $16,000 in 2022)
  • $175,000 annual exclusion for gifts to a noncitizen spouse (increased from $164,000 in 2022)

These increased exemptions create opportunities to make larger lifetime gifts, to leverage more assets through a variety of estate planning techniques, and to shift income-producing assets to individuals such as children or grandchildren, who may be in lower income tax brackets and/or reside in states with low or no state income tax. The increased GST exemption amount also offers an opportunity to allocate GST exemption to prior transfers for which there was insufficient GST exemption available at the time of the original transfer. Such allocation of GST exemption to prior year gifts will be based on current asset values at the time of the subsequent allocation. 

Clients should review their existing trust instruments to ensure they are still in line with their current objectives. This is particularly important for plans that are designed to allocate or distribute amounts based on the available estate tax exemption or GST exemption. 

As a reminder, unlimited tax-free transfers can be made for certain medical and educational expenses, but only if the payment is made directly to the medical provider or educational institution.

Absent further legislation, in 2026, the exemption amounts will revert to prior levels under the American Taxpayer Relief Act of 2012 ($5,000,000 per taxpayer, indexed for inflation for years 2010 through 2025). As a result, the planning opportunities offered by the increased exemption amounts are ending in the next two years. As a result, it is critical for clients to consider implementing a lifetime gifting strategy with the guidance and advice of their professional team (e.g.: attorney, accountant and financial advisor) to take advantage of higher exemption amounts before their expiration on December 31, 2025. 

2022 Gift Tax Returns

Gift tax returns (IRS Form 709) for gifts made in 2022 are due on Tuesday, April 18, 2023. This deadline may be extended to October 16, 2023, with a timely filed request for an automatic extension to file 2022 income tax returns. However, the extension does not extend the time to pay any gift taxes that may be due.

For clients who have grantor retained annuity trusts (“GRATs”) and/or qualified personal residence trusts (“QPRTs”) that terminated in 2022, consideration should be given regarding whether or not to file a gift tax return to avoid unintended consequences.

Victims of California Storms – Relief and Extension of Tax Deadlines

As a result of the recent California storms, the IRS announced that victims of the California storms will have until May 15, 2023 to file various federal individual income and business tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of tax-exempt organizations; and employment and certain excise tax returns) and make tax payments otherwise due between December 27, 2022 or January 8, 2023, and May 15, 2023. This relief applies to our local counties such as Santa Clara, San Mateo, San Francisco, Contra Costa, Marin, Alameda, Solano, Santa Cruz, Sonoma, Monterey, and San Benito. Please note that the start date for the initial deadline (December 27, 2022 or January 8, 2023) varies by county. Eligible individual taxpayers impacted by this extension will also have until May 15, 2023, to make 2022 contributions to their IRAs and health savings accounts. 

In California, the Franchise Tax Board provided the same extension for individuals and businesses.  In addition, taxpayers affected by the California storms may claim a deduction for a disaster loss. 

Please consult with your CPA to make sure you follow the proper requirements and procedures.

Portability Election – Extended to Five Years

Portability planning continues to take on greater importance given the temporary nature of the increased exemption amounts. With portability, a deceased spouse’s unused estate and gift tax exemption can be transferred to and used by the surviving spouse during his or her lifetime or at death. This allows many clients with A-B trust provisions to amend their current estate planning documents to simplify administration after the first death. The portability election can only be made on the deceased spouse’s U.S. estate tax return (IRS Form 706). Previously, the IRS allowed a surviving spouse to file a federal estate tax return solely to elect portability within two years of the spouse’s date of death, provided that the surviving spouse meets certain requirements. In 2022, the IRS extended the period from two years to five years in response to the backlog of portability requests and late filings. Failure to claim a deceased spouse’s unused exemption results in lost estate tax benefits and may lead to estate tax (or greater estate tax) at the death of the surviving spouse.  

SECURE Act 2.0

The SECURE Act of 2019 created key reforms to laws governing retirement plans. To understand how they apply to you, it is recommended that you speak to your tax or financial advisor. Among other things, the Act provided individual retirement account (“IRA”) owners and participants in qualified plans (collectively a “Participant”) additional time to contribute to their IRAs and delayed the withdrawal of required minimum distributions (“RMDs”). On December 29, 2022, the SECURE Act 2.0 was signed into law. There are too many changes to list, but some of the changes implemented by the SECURE Act 2.0 that may be relevant to our clients and colleagues are as follows:

  • Qualified Charitable Distributions:  If a Participant is age 70½ or older, the SECURE Act 2.0 expands the IRA charitable distribution provision to allow for a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts.
  • Delayed RMDs:  For individuals turning 73 between 2023 and 2029, the required beginning date for a Participant to begin withdrawing required minimum distributions (“RMDs”) from their retirement accounts is now 73 years old; for individuals turning 73 between 2030 and 2032, the required beginning date for such Participant to begin withdrawing RMDs from their retirement accounts is now 74 years old; and for individuals turning 74 from 2033 onwards, the required beginning date for such Participant to begin withdrawing RMDs from their retirement accounts is now 75 years old.
  • Repealed ROTH Account Pre-Death RMDs:  Previously, pre-death distributions were required of Roth designated accounts in employer retirement plans (e.g., 401(k)s and 403(b)s). The SECURE Act 2.0 repealed the pre-death distribution requirement for Roth accounts in employer plans, effective for taxable years beginning after December 31, 2023.
  • Conversions from 529 Plan to Roth IRAs:  Assets in 529 plans (provided that the 529 account was established for at least 15 years) may be rolled over to a Roth IRA for the benefit of the 529 plan beneficiary, subject to restrictions such as annual Roth contribution limits and an aggregate lifetime limit of $35,000. This new rule offers some flexibility and peace of mind for donors concerned about penalties associated with non-qualified withdrawals from an overfunded 529 plan.
  • IRS Proposed Regulations as of February 2022: One of the major changes implemented by the SECURE Act was the 10-year rule.  Recall that under the 10-year rule, most beneficiaries of a deceased Participant’s IRA were required to withdraw all IRA assets within 10 years of the Participant’s death.                                            On February 23, 2022, the IRS released proposed regulations to clarify this aspect of the SECURE Act. Specific to RMD, the proposed regulation provides that if a Participant dies before their required beginning date, the 10-year rule only requires that the entire account be distributed by December 31 of the tenth year following the year of the death of the Participant. But, if the Participant dies after their required beginning date, then annual RMDs are required in years one through nine.  By year 10, the entire account must be distributed.

These changes will affect each Participant differently. Individuals with significant value in traditional IRAs may want to consider advanced planning techniques including Roth conversions, charitable remainder trusts and life insurance. 

Corporate Transparency Act

In 2021, Congress enacted the Corporate Transparency Act (“CTA”) as a means to locate anonymous shell companies. However, this applies to all limited liability companies (LLCs), limited partnerships (LPs), C Corporations, and S Corporations, and General Partnerships, if they are registered with a Secretary of State.

Specifically, the CTA imposes reporting requirements on domestic or foreign companies that are formed by filing with the Secretary of State of any jurisdiction in the United States or a foreign entity registering to do business in the United States. As for individuals, the CTA requires the reporting company to disclose information regarding (i) every individual who, directly or indirectly, exercises authority over the reporting company or owns or controls at least 25 percent of the company interest; and (ii) every individual who acts as an agent on behalf of the company.

This compliance starts in 2024, and anyone who owns companies registered with a Secretary of State must comply with these rules.

How do these changes affect existing Hopkins & Carley estate planning documents?

Clients may wish to consider updating their current estate planning documents to reflect changes in the law. For example, by utilizing the portability rules, many married couples can simplify the administration of their revocable living trust after the first spouse’s death. Also, it is imperative that estate plans designed to allocate or distribute amounts based on the available estate tax exemption and/or GST exemption be reviewed to ensure that the new, higher exemption levels are consistent with the original objectives of the plan

We typically recommend a review of estate planning documents with one of our attorneys every two or three years. Reasons that clients may need modify their plan include:

  • An increase or decrease in the size of their estate;
  • Acquisitions of major assets including out of state real property and life insurance;
  • Changes in marital status of clients or their children (marriage, divorce or separation);
  • Additions to their family through birth, adoption or marriage; or
  • New thoughts about who should administer funds for their heirs, or how and when their heirs should receive their estate.
Other Hopkins & Carley News

Family Wealth and Tax Planning Group

Our Family Wealth and Tax Planning (FWTP) Group has added three attorneys and one paralegal to make us the largest Trust & Estate practice in Northern California:

Alma Soongi Beck is Of Counsel in the FWTP Group, based in our Redwood City office. Prior to joining Hopkins & Carley, Alma was a partner at Lakin Spears, LLP, as well as founder and principal attorney of The Beck Law Group.

Sara E. Hire is an associate in the FWTP Group, based in our San Jose office. Prior to joining Hopkins & Carley, Sara was with the Law Offices of Lisa C. Bryant, in San Jose. 

Angel Y. Saunders is an associate in the FWTP Group, based in our Redwood City office. Prior to joining Hopkins & Carley, Angel was with Chauvel & Glatt, LLP in San Mateo. 

Jacqueline R. Fritze has re-joined the FWTP Group as a paralegal and is based in our San Jose office. 

Peter LaBoskey and Bruce B. Roberts have retired from the active practice of law.

As always, we look forward to assisting you and your family with your estate planning needs. If you have any questions or would like to discuss any of the above issues in more detail, please feel free to contact any one of our FWTP attorneys listed below:

San Jose Office Redwood City Office
Charles H. Packer Laurie-Ann D. Look
James M. Hager Darin H. Donovan
Jennifer L. Mispagel John P. Golden
Shinny Liu Richard J. Schachtili
Sara E. Hire Martin Behn
Alma Soongi Beck
Suzanne C. Farley
Vern Adkins
Angel Y. Saunders
Jill K. Ernst
Joanne J. Lue


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