Dear Friends and Clients:
Happy Holidays!
As with years past, we wanted to send a letter to friends and clients with new information on prospective tax updates and law changes, as well as key estate planning reminders for an estate planning checkup.
CORPORATE TRANSPARENCY ACT DEADLINE
As if the holiday season was not busy enough, this year companies operating in the United States had a new task added to their to-do list. Under the Corporate Transparency Act, all existing entities that were formed before January 1, 2024, need to complete and file a “beneficial ownership information report” with the Financial Crimes Enforcement Network (“FinCEN”). The filing is due no later than January 1, 2025. Some of the entities that need to file include corporations, limited liability companies, limited partnerships, some nonprofit corporations, homeowner associations, and limited partnerships. Certain exemptions from filing may apply.
The beneficial ownership information report can be filed online at FinCEN’s website. We suggest that you contact your business attorney if you are unsure whether your entities need to file, need assistance with the filing or if you have any other questions about this new federal law.
IMPORTANT REMINDER:
The federal estate, gift, and generation-skipping tax exemptions are based on the 2018 Tax Act, and are currently set to sunset on December 31, 2025.
FEDERAL GIFT AND ESTATE TAX AMOUNTS
Estate and Gift Tax Exemption
The federal estate and gift tax exemption is $13.61 million for 2024. The federal estate and gift tax exemption is set to increase on January 1, 2025, to $13.99 million. Any excess amount of the estate is subject to a flat tax rate of 40%.
The annual gift tax exclusion for 2024 is currently $18,000 per donor per donee. The annual gift tax exclusion is set to increase January 1, 2025, to $19,000 per donor per donee. If total gifts to a donee are the annual gift tax exclusion amount, no gift tax return is required, and the amount does not reduce the donor’s estate and gift tax exemption. Keep in mind that qualified gifts for tuition and medical bills, if paid directly to the educational or medical institution, do not count against the annual gift tax exclusion or the lifetime estate and gift tax exemption.
Generation-Skipping
The “GST” exemption will remain the same as the federal estate and gift tax exemption, or $13.61 million for 2024, and $13.99 million for 2025.
In other words, the exemptions will return to pre-2018 levels on January 1, 2026. With this in mind, and presuming a client can afford to make gifts in excess of the pre-2018 limit, such clients may want to consider making gifts that utilize these higher exemptions, particularly because any unused exemption will “disappear.” In other words, a donor will need to make a gift above the pre-2018 tax level (i.e., $5.5 million indexed for inflation) to utilize the “disappearing” exemption amount. It is estimated that the inflation-adjusted exemption amount for 2026, if the law does not change, will be approximately $6.4 million.
STATE GIFT AND ESTATE TAX AMOUNTS
The Oregon Estate Tax Exemption
remains at $1 million with any excess amount subject to a marginal tax rate of 10-16% for 2025 and beyond. The Oregon exemption is not indexed for inflation.
The Washington Estate Tax Exemption
remains at $2.193 million, with any excess subject to a marginal tax rate of 10-20% for 2025 and beyond. Recall that neither Oregon nor Washington has a gift tax. As such, gifts made during life do not reduce the Oregon and Washington estate tax exemptions.
ESTATE PLANNING CHECKUP
As you are considering whether it is time to update your estate plan, consider the following common facts and list events that should have you thinking about whether to contact us:
Changed Circumstances:
Marriage, divorce, birth of child, retirement, inheritance?
Beneficiary Designations:
Do retirement accounts and life insurance policies designate proper beneficiaries per your plan, particularly in case of employment change or change in custodians or managers of assets?
Living Trust Funding:
Are appropriate assets properly titled in, or connected with, your trust?
THE SECURE ACT
The SECURE Act has significantly changed the retirement planning landscape. It was originally signed into law in 2019 and later expanded by SECURE Act 2.0 in 2022.
THE HEADLINE
Prior to the SECURE Act, participants had to begin making Required Minimum Distributions (RMDs) from their retirement accounts at age 70½, thereby forcing participants to begin paying income tax on the funds that had been growing tax-free. Under the SECURE act, that age is now 73 and will increase to 75 starting in 2033. Participants may now also continue to make contributions to traditional IRAs past age 70 ½, which was previously prohibited once RMDs began (creating an opportunity for further tax deferral).
The SECURE Act contains additional provisions, including: increased “catch-up” contributions for workers nearing retirement, greater flexibility for 529 plan spending, and the ability to use retirement plan assets to fund Charitable Remainder Trusts.
THE FINE PRINT
The highly touted benefits of the SECURE Act did not come cheap—costing billions in lost revenue. To make up for this largess, the SECURE Act increased the taxation on second generation beneficiaries. Previously, beneficiaries of an IRA could elect to roll over that IRA into a “stretch IRA” with payments stretched out over their actuarial life spans. Under the SECURE Act, those payments may now last a maximum of 10 years. Funds are thus forced out of the IRA much more quickly, triggering tax (an estimated $15.7 billion more tax than under the old rules). Note a few exceptions to the 10-year rule: surviving spouses, beneficiaries within 10 years of age of the participant, minor children (a person under age 21 is a “minor” for purposes of the SECURE Act), and disabled beneficiaries.
THE TRUST TRAP
Prior to the SECURE Act, many plan owners named trusts as beneficiaries of their IRAs or other retirement plans to control distributions, particularly for beneficiaries who were young or had challenges with health, addiction, or finances. A common technique to create a trust that qualified for the lifetime “stretch” treatment, was to create a “Conduit” Trust that required the Trustee to pass at least the RMD out each year to the beneficiary. Thus, a beneficiary would receive distributions in a controlled way, lasting for his or her entire life if the Trustee only distributed the RMD. Now, however, the Conduit Trust provisions will drain the IRA (or any other retirement plan) of all value within ten years—not the result the participant was hoping for. Accordingly, many of those Conduit Trusts should now be amended. The SECURE Act has made it easier to name an “Accumulation” trust as a qualifying beneficiary, so that a Trustee can hold IRA distributions within the trust rather than being forced to distribute them to a beneficiary who is not capable of managing them. Doing so, however, does subject those proceeds to a higher tax rate within the trust.
CONCLUSION
Suffice it to say that in addition to taking advantage of the SECURE Act’s benefits, it is now critical to examine your beneficiary designations and any trusts that may be named as a beneficiary to evaluate the effects of the SECURE Act.
NEW ESTATE PLANNING ASSOCIATE
Dawson D. Dkalsky
Saalfeld Griggs PC has the pleasure of welcoming Dawson Skalsky as our newest associate attorney to the Estate Planning and Business Law team in our Bend Office. He will focus on business, corporate, tax law, estate planning, and trust and estate administration matters. He recently passed the Oregon State Bar and has a passion for helping business owners and individuals at all levels and stages in life. Dawson is the perfect addition to our Estate Planning and Business Law team. We are excited to have him and look forward to his future at the firm.
The information in this letter is not intended to provide legal advice. For professional consultation, please contact the Saalfeld Griggs Estate Planning team.
Salem Office: 503.399.1070. Bend Office: 541.693.1070.
This publication is prepared by the law firm of Saalfeld Griggs PC as an information source. For further information on the matters addressed in this letter or to request inclusion on the mailing list, please contact Miranda Hugie in our office. The contents of this publication should not be construed as legal advice. Readers should not act upon information presented in this publication without individual professional counseling. Receipt of this publication does not constitute or create an attorney-client relationship. The material in this publication may not be reproduced without the written permission of Saalfeld Griggs PC.