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Tax Changes are Coming! Create and Fund Flexible Grantor Trusts

Updated: Apr 15, 2021

Bloomberg announced on March 15, that a major federal tax hike is planned for early 2022. Treasury Secretary Yellen advised that at least some of the next Covid-19 stimulus act bill, will have to be paid for.

Proposed changes

  1. Raising corporate tax rate to 28% from 21%

  2. Raising income tax rates on individuals making more than $400,000

  3. Expanding the estate tax reach

  4. Higher capital gains taxes on those earning more than $1 million a year

  5. Pairing back tax preferences for pass through businesses.

Recently, on March 9th, Hawaii's state senate passed legislation to increase its top marginal tax rate to 16%, up from 11%, on taxable income of more than $200,000. The bill now moves to the house for debate

More proposals will be forthcoming, example: Ultra-Millionaire Tax Act proposed on 3/1/21

Therefore it is imperative to speak with your clients and take the necessary steps to mitigate taxes, before it is too late!

See below for one of the sales concepts that could assist with planning for these changes.

** As per the National Law Review: Lower exemption could be between $3.5 million and $5 million per individual ($7 million and $10 million for couples) and could be made retroactive to January 1, 2021.

Create and Fund Flexible Grantor Trusts The events of 2020—including the COVID-19 pandemic, the SECURE Act, and a new administration in the White House and Democratic control of Congresshave set the stage for this year's unique environment. To help you succeed today, your Crump Advanced Sales team has identified the five top sales ideas for you to present to clients in 2021. (This is our fifth sales idea. Miss one? Scroll down for more!)

Our final idea to consider is creating and funding flexible grantor trusts. Estate and gift taxes are likely to be increased in the near future, but no one knows what changes will be made and when. The current $11.7 million per person estate and gift tax exclusion is "use or lose" according to IRS regulations, so now is the time to use it. Grantor trusts can be drafted to give their donors a high level of flexibility to adjust to future changes in personal circumstances and the tax code, but there’s no time to lose in engaging attorneys expert in drafting these documents.

Once assets have been moved into trust, life insurance is often an excellent asset for the trustee to consider purchasing. Life insurance can provide the liquidity needed to pay taxes on assets still in the estate. Other life insurance options to consider include long-term or chronic care riders to provide liquidity to pay these expenses, and purchasing insurance on younger generations to enjoy the tax-free build-up of cash value and prevent the trust from being depleted for subsequent generations. Income-producing assets already owned by the trust may also be sufficient to fund insurance premiums without the grantor needing to make any additional gifts. High-net-worth clients recognize that they need to be prepared for sudden changes in tax laws and market valuations. But in the face of political uncertainty and market volatility, it may be difficult to choose which assets to transfer into trust, or determine fair market value. Attorneys and appraisers may be backlogged with similarly situated clients. Here are some tips for setting up trusts for estate planning with flexibility to pivot quickly as possibilities turn to actualities.

Contact us today to find out more and how our team of trust advisors can help!

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