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Get in the Spirit of Giving: Make the Most out of TCJA Tax Exemptions

November 2022

Get in the Spirit of Giving: Make the Most out of TCJA Tax Exemptions

Lucas Maxwell, CFP®
Senior Vice President
Trust & Family Office Advisor

This holiday season is a unique time for estate planning. The 2017 Tax Cuts & Jobs Act ("TCJA") doubled the unified credit, generation-skipping and lifetime giving exemptions from $5.6 million to $11.2 million per person, indexed for inflation. As of 2022, that number is $12.06 million per individual or $24.12 million per couple without concern for estate transfer taxes.

Signs continue pointing toward the possibility of a global recession, with stock market volatility, high interest rates and increasing inflation. In these challenging economic times, carefully reviewing and updating your estate plan puts a lot of options on the table. Options that you should consider in a timely fashion because this unique giving opportunity reverts back to $5.6 million on January 1, 2026.

If one wants to take advantage of this sunset gap amount, the next several years are crucial. A variety of estate-planning techniques allow you to use up some of that amount while also maintaining access to those funds for your lifetime.

1. Set Up a Dynasty Trust

A dynasty trust exists from one generation to the next without a required termination date. For example, a parent may create a dynasty trust on behalf of their son and his descendants. Upon the son’s death, we divide the remaining assets in the dynasty trust into shares for the lifetime of his children, which is then again divided amongst the next generation of descendants.

This results in minimal exposure to both gift taxes and federal estate taxes. In recent years, however, certain states have limited the reach of dynasty trusts, although nearly half of all states (including Alaska, Arizona, Illinois, Maryland, and Wisconsin) allow them in perpetuity if set up within their jurisdictions.

2. Use a Spousal Lifetime Access Trust

Another particularly effective estate planning tool for couples is a Spousal Lifetime Access Trust ("SLAT"). This innovative method allows you to utilize some of your estate tax exemption without diminishing your combined cash flow. The main purpose is to remove a rapidly appreciating asset (such as shares in a small business) and the future growth from the couple’s estate.

If necessary, you can include language in the trust document for distributions to be made pursuant to Health, Education Maintenance & Support ("HEMS") during the spouse’s lifetime. SLAT's can also be used as a grantor trust so that the grantor, not the trust, pays income taxes. Trusts hit their top tax rate at a drastically lower rate compared to an individual or couple.

One thing to consider with SLATs is if the spouse dies, the assets could immediately pass to the children. You should draft separate spousal trusts with materially different provisions so that the reciprocal trust doctrine does not apply and force later inclusion in the grantor's estate, IRC §2036(a)(1) (retained life estates). We would call this type of planning the use of two trusts for each other, the creation of non-reciprocal spousal trusts.


Ultimately, the goal of these strategies is to focus on tax planning and ensure your assets do what you intend for them to do later in life and beyond. This can range from leaving a multi-generational legacy all the way to leaving a legacy for a charity, and now is the perfect time to consider these things before the window closes and your exempted amounts cut in half.

Of course, you shouldn’t decide alone. In any matter of estate or tax planning, it’s crucial to partner with trusted advisors, CPAs and attorneys for a regular review of your estate planning documents in conjunction with a broader financial overview. Contact us today to find out what the most fiscally sound moves are to solidify your family for generations to come.
Lucas Maxwell, CFP®
Senior Vice President
Trust & Family Office Advisor
Lucas serves as both a trusted partner and advocate, offering clients objective advice based on diverse industry experience. He is dedicated to understanding, prioritizing and then collaborating to achieve each client’s unique goals through strategic investment planning, tax management, and estate planning.

DISCLAIMER: This newsletter is intended to provide thought-provoking commentary. The information presented herein has been obtained from and is based upon sources and vendors deemed to be reliable, but may be incomplete. Parkside Financial Bank Trust does not itself endorse or guarantee, and assumes no liability for, the accuracy or reliability of any third party data or the financial information contained herein.

Parkside Financial Bank Trust is not a tax advisor. All decisions regarding the tax implications of your investments should be made in consultation with your independent tax advisor. We will work with you independent tax and/or legal advisor(s) to help create a plan tailored to your specific needs. The material contained herein is for informational purposes only and does not constitute tax advice. Investments are not insured by the FDIC or any federal government agency, provide no bank guarantee, are not a deposit and may lose value.

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