Category: Corporate Governance

2 years.  24 months. 

That is the runway we have under current law before the Estate Tax Exemption (currently $13.61M per person) will drop dramatically to $5M per person inflation-adjusted.  For clients that either have a current Estate Tax issue, or don’t have one now but will starting January 1, 2026, there are several techniques that can be put in place to mitigate those issues.

The first one is an Irrevocable Life Insurance Trust (ILIT).  Many clients don’t realize that the death benefit of life insurance proceeds are includable in their taxable estate.  For clients that have large policies, that alone can bump them over the limit.  Establishing an ILIT that owns and is the beneficiary of such policies can remove those death benefits from their taxable estate and 40% tax that would otherwise apply.  Clients should also be aware of the 3-year pull back rule for policies gifted into ILITs.  This rule states that if a client gifts a policy into an ILIT and passes away within 3 years of such gift, all the policy proceeds will be pulled back into the client’s taxable estate.  Accordingly, for many clients, we structure this transaction as a sale of the policies into the ILIT to be protected from this pull-back.

The second technique is a Family Limited Partnership LLC (FLP).  This technique involves forming an LLC with the North Carolina Secretary of State that would act as an investment company holding any number of a client’s investment assets.  Clients still have full access to funds within the FLP as Managers of the LLC.  The FLP is popular for at least 2 reasons.  First, it provides lifetime protection of assets from creditors.  If a client were to get sued in either a professional or personal capacity, the FLP can help shield assets from creditors.  Second, and more importantly as it relates to the Estate Tax conversation, under current law, FLPs allow for discounted valuations for estate and gift tax purposes.  Because clients own interest in an LLC instead of the underlying marketable assets themselves, clients can oftentimes get discounts ranging from 15-40% for estate and gift tax valuation purposes.  Depending on the value held within the FLP, this could save clients millions of dollars in estate and gift taxes.

The third strategy is lifetime gifting into Spousal Lifetime Access Trusts and Children’s Trusts.  A client creates an irrevocable trust for either their spouse and/or children.  They subsequently gift assets into that trust and these assets can then grow outside of the Estate Tax system. There are 2 strategies to gifting.   One is using the Annual Exclusion amount ($18,000 for 2024) as a long-term gifting strategy over many years.  This is a slow-burn strategy that can gradually shift wealth to future generations without even touching a client’s available Estate and Gift Tax Exemption.  The second strategy is a large gift of close to the full current exemption amount.  This strategy is attractive for clients that have the wealth and assets to take advantage because the Estate and Gift Tax Exemption is a use-it or lose-it game.  If a client doesn’t use their full exemption before that sunset period, they can’t go back and use it in the future.  Additionally, SLATs and Children’s Trusts provide creditor-protection over assets they hold and give Grantors the option of paying all income taxes on trust income, which we recommend at least initially as this “supercharges” the amount that clients can legally give their family outside the tax system (enabling the trust funds to grow without the “drag” of income taxation).

Implementing these strategies far ahead of the sunset period can exponentially increase the amount of wealth passed to, and taxes saved for, future generations.

About the Author

John J. Long, Jr., JD 
Partner

Stewart Law, P.A. is pleased to announce that our firm has been included in the 2024 edition of The Best Law Firms in America^®. Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence.

Best Lawyers has earned the respect of the profession, the media and the public as the most reliable, unbiased source of legal referrals. For the 2024 edition of The Best Law Firms in America^®, more than 13.7 million evaluations of more than 23,000 law firms were analyzed to identify the top legal talent, as identified by their peers.

Law Firms on The Best Law Firms in America^® list are divided by geographic region and practice areas. They are reviewed by their peers based on professional expertise and undergo an authentication process to make sure they are in current practice and in good standing.

Additionally, Attorney Todd A. Stewart was included in the 2024 edition of The Best Lawyers in America^® for his work with Trust and Estates.

Please join our team as we celebrate this wonderful accomplishment!

Electronic filing, or eFiling, has become an integral part of modernizing the legal system across the United States and more specifically throughout North Carolina.  The rollout of a statewide electronic court filing system called Odyssey Integrated Case Management System is officially underway.  This month Mecklenburg County started its journey as the newest county to join the Odyssey system, where all Court filings will now be electronic.

The change comes with many positives.  We will now be able to submit court documents online to the Clerk’s office in eCourts counties, pay filing fees online, receive filing status updates via email, and get file-stamped copies of court documents upon the Clerk’s acceptance.  We are hopeful that with the efiling system the Estate Administration process will be more streamlined, less cumbersome, and hopefully move a lot quicker than it has in the past.  The team members of Stewart Law should be able to spend less time at the Courthouse and more time providing a premium service to our clients.  Since this is a relatively new process, we expect some blips along the way, but are hopeful that this change will be a positive one.

 

About the Author

Hillary E. Mims
Paralegal

As we approach the fourth quarter of 2023, clients will start receiving end-of-year checklists from their financial advisors, CPAs, and attorneys. One item we strongly recommend be added to these lists, which may require the coordination of all a client’s team of advisors, is Annual Exclusion Gifting.

Annual Exclusion Gifting is a small, but powerful, tool that should be part of a client’s “legacy building” tool belt. For 2023, an individual can gift up to $17,000 to as many different people they want while not eating in to their Estate & Gift Tax Exemption Amount. This is essentially a “freebie” gifting option that expires at the end of each year. Utilized over a long period of time with appreciable assets, this strategy can move millions of dollars worth of assets through to the next generation without even touching a client’s Gift Tax Exemption Amount.

By way of example, consider a family of 5 (mother, father, and 3 young children). Each year, the parents can gift a combined $102,000 to their children using the Annual Exclusion. If the parents do this each year for 40 years, over $4M can be passed using this technique outside of the estate and gift tax system while still leaving the parents with their full Estate & Gift Tax Exemption Amount, untouched. Furthermore, all future appreciation on those gifts also pass gift and estate tax free as well. When families grow and grandbabies arrive, even more can be used to shift generational wealth through this technique.

When implementing Annul Exclusion Gifting, it is important to plan with your team of advisors and select the proper vehicles to use for gifting (SLATs, Family Limited Partnerships with Voting/Non-Voting Units, Children’s Trusts, etc.) and target appreciable assets that will grow over time. Here at Stewart Law, we’d love the opportunity work with your advisors and help plan and grow your family’s legacy through these techniques.

 

About the Author

John J. Long, Jr.,  JD
Partner

Critical to the success and smooth administration of any estate plan is proper funding and allocation of assets.  Generally this means making sure that each account, vehicle, parcel of real property, or any other asset is titled in such a way (or has a beneficiary designation) such that the asset will pass as the owner intends with as little delay, cost, and general harangue as possible.

Ensuring that title to real property parcels is proper most often requires transferring real property – into tenancy by the entirety with a spouse, jointly with another owner, or into a trust, limited liability company, or other entity.  Transferring real property in North Carolina takes place by execution and recordation of a deed.

When deeds are drafted, signed before a notary public, and recorded in the Register of Deeds of the County in which the property lies, it becomes a public record.  Certain unscrupulous predators will scrape the public records, either the Register of Deeds or the County Tax Assessor, to look for recent transfers of property.  These malicious actors then use the information on those deeds, namely the mailing address of either the grantor or the grantee (transferor and transferee of the property, respectively) to send mailings or even phishing emails in an attempt to create victims of the parties to the transfer.

Whenever you transfer real property, be on the lookout for unusual correspondence claiming there has been a problem with the transfer or related insurance matters.  Often, the scammer will send correspondence that appears to be from a legitimate government agency claiming that action needs to be taken to avoid some dire consequence.  If you receive a letter stating that you must pay a service fee for your deed, do not pay it without independent verification – it could be a scam.

These mailings often feature language such as a claim that the letter is a “Recorded Deed Notice.”  The letter may look like an invoice and include a document number or recording identification number – and it may even be correct!  Remember that these scammers have used legitimate government records to try and spoof government communication.  The letters will also generally include a “respond by” or other due date, often with a short time horizon, in an attempt to create pressure.  Other accurate details about the property, including address, parcel number and date of recordation, purchase, or transfer, often make the letters appear official. Sometimes, you may see in fine print a disclaimer that the mailing is not a bill from a government agency and there is no obligation to pay unless you want to purchase a property assessment profile.  The Register of Deeds, or the attorney or title agent assisting you, should return a recorded copy of the deed to you free of charge.  When you retain our firm to prepare and record deeds, we will provide a copy of the recorded deed as soon as we receive it back from the Register of Deeds.

About the Author

S. Blaydes Moore, JD
Attorney

Two of our attorneys attended the 44^th Annual Estate Planning and Fiduciary Law meeting at Kiawah Island, South Carolina in July.

Here are 3 takeaways to consider in your own estate planning:

Living Probate.
We almost universally hear from our clients who are parents how important it is to them that their children “get along well” after their deaths. There’s no question that putting wealth on the table can jeopardize this. If you think this may present a special concern in your family, then know that there are some solid legal solutions. “Living probate” is a procedure where a court determines the validity of your Will before you die, not after. Thus, any disputes are known by you and can be addressed by you. In North Carolina this procedure is now available for both Wills and Revocable Trusts.

Income Tax Minimization in Trusts.
There are tradeoffs in the ways that Trusts can be used to minimize estate taxes while in some cases increasing income taxes for beneficiaries. Especially while the estate tax exemption is high, so that estate taxes are less of a concern in many cases, it’s important to know that there are features that can potentially be added to some older trusts that will reduce the income tax burden on those who will next benefit from the Trust. Example: when your father died, he set up a Trust for your mother who is still alive and receiving income from it. Consider in this case whether the Trust could be better positioned for income tax minimization for the next generation.

Federal reporting for closely-held entities. 
The Corporate Transparency Act passed in 2021 will require most small business entities, such as corporations and LLCs, to report their beneficial owners to U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). Generally, unless the company is a bank or insurance company or employs more than 20 full-time employees, then it will have to report all of its beneficial owners to FinCEN. “Beneficial owners” in this case means individual persons, not entities. Existing entities will have a year from January 1, 2024 to report. New companies formed after January 1, 2024 will need to file the report within 30 days of formation. We’ll be communicating more with our clients in the coming months on this topic and best practices to comply with the rule.

If you wish to discuss your Estate Plan, whether for updates or creating a new one, please contact Stewart Law and ask to speak with one of our attorneys.

About the Author

Todd A. Stewart, CPA, JD
Managing Partner