Late in the 90’s I had a neighbor with a green thumb. Knowing nothing horticultural I would feign interest in her work whenever we bumped into each other outside, just to be polite. She unintentionally called my bluff one day asking me to choose a favorite perennial. She had to explain to me that a perennial was something that came back every year. “Freddy Krueger,” was the best response I could muster on such short notice.
Three decades of movie-goers were treated to the original (and then eight iterations) of A Nightmare on Elm Street, all ending with the seeming demise of the razor-gloved serial killer, only to have him perennially re-emerge in the next sequel. Let’s refer to our topic today as A Nightmare at the U.S. Department of Treasury.
Each year the President and his advisors publish what is known in the trade as The Green Book, revenue proposals constituting a “wish list” of legislative initiatives to increase government income. The bad news is that the document runs 280-plus pages. The good news is that, while all directly or indirectly affect our pocketbooks, only a few items are of primary concern in our practice of insurance planning. Briefly, from the 2017 edition – keeping in mind before your blood pressure rises that these are, for now, just proposals:
- All transfers of appreciated property should be treated as a sale – Gone with the wind would be those days of stepped-up basis in inherited property and carry-over basis for gifts! Now gifts to anyone other than a spouse of charity would be subject to capital gains taxation.
- Death and taxes, more than you know – Lower the lifetime federal gift, estate and generation-skipping lifetime exemption to $3,500,000 and bump the maximum transfer tax bracket back up from 40% to 45%.
- Limit the total use of the $14,000 annual gift tax exclusion to $50,000 per taxpayers among all donees. We recently had husband-wife clients with five children and eleven grand-children. They are planning to use the full $1,540,000 they can muster among the available annual exclusions. Implementation of this proposal would take the pep out of that step. The “present interest” requirement would be removed (i.e. no more Crummy letters). Small consolation.
- Purchasers of in-force life insurance policies greater than $500,000 would have to report the sale to the carrier. This is aimed primarily at the life settlement marketplace and would alert the insurance company of the potential taxability of the death benefit, reportable to the IRS.
- Proscriptions regarding the income and/or estate and gift tax advantages of both grantor-retained annuity trusts (GRATs) and regular grantor trusts (often used to remove property or income on and appreciation from property from the estate).
Those wishing to peruse the full report download it here.
Don’t take comfort in the fact that the proposals are, for now, only in our dreams. After all, that’s where folks’ problems started with Freddy Krueger. And like a hotel thief The Green Book comes back each year checking the doorknobs on all the rooms.
Call with any tax questions or planning questions that come up in your work.