Post on 22-Jan-2022
This newsletter is intended as an information source for the clients and friends of Nixon Peabody LLP. The content should not be construed as legal advice, and readers should not act upon information in the publication without professional counsel. This material may be considered advertising under certain rules of professional conduct. Copyright © 2016 Nixon Peabody LLP. All rights reserved.
What’s trending on NP Trusts & Estates
Tax related numbers for 2016-2017, CME Group launches Bitcoin reference rate and real time
index, 2017 individual tax filing deadlines, income tax rates and filing thresholds, estate and gift tax
exclusion amounts, and more. Here’s what’s trending in estate planning and wealth management.
Wealth Management
First Bitcoin Index and Reference Rate launched
Bitcoin appeared in 2008 in the aftermath of the financial crisis as a new form of electronic
money or “cryptocurrency.” Bitcoin’s connection to criminal activity and the “darknet
markets” has cast it in an unfavorable light with government officials, law enforcement
and the media, but its explosive growth over the past eight years has caught the attention
of serious investors and financial institutions.
In a move that will help legitimize bitcoin’s use as a financial asset, the CME (Chicago
Mercantile Exchange) Group has launched its CME CF Bitcoin Reference Rate (BRR) and
CME CF Bitcoin Real Time Index (BRTI) on November 13. Although other bitcoin price
indexes exist, this will mark the first time a large exchange has implemented such a
measure.
Several leading bitcoin exchanges and trading platforms will provide real-time pricing data
to CME. The BRR combines the trade flow of these exchanges throughout the day and
calculates a daily reference rate for the U.S. dollar price of one bitcoin (Click here to view
the current BRR for one bitcoin). Meanwhile, the BRTI will reflect aggregate global buy
and sell demand into a consolidated order book that will reflect the current price of one
bitcoin in U.S. dollars. According to CME, these two numbers will be standardized and
spot checked with independent oversight, and will be used to quicken the authentication
of “digital assets” as a new asset class.
What does this mean for investors? They will most likely see futures and options based on
the bitcoin index and new ETFs for digital currencies in the near future, as well as new
January 4, 2017
innovations for worldwide trade and lower costs due to a single, uniform currency whose
price is visible to all. There are many potential advantages for digital currencies, and those
who participate will be in the best position to gain from their promising future.
— Thomas A. Stedman
Income Tax Planning
Individual income, gift and estate tax related numbers for 2016-2017
The following list contains some of the "number" changes (many based on mandated
inflation adjustments) that you might find interesting and helpful for 2017 tax and estate
planning *(with 2016 comparative numbers).
Federal Income Tax Items 2016 2017
Top federal marginal tax rate for ordinary income
(applicable for taxable income over $466,950 joint
and $415,050 single in 2016 and $470,700 joint and
$418,400 single in 2017); lower tax brackets are 10%,
15%, 25%, 28%, 33% and 35% in 2016 and 2017
39.6% 39.6%
Federal tax rate for long-term capital gains (assets
held for more than one year) and qualified dividends
for individuals in the 10% and 15% tax brackets
(taxable income of up to $75,300 joint and $37,650
single in 2016 and $75,900 joint and $37,950 single in
2017)
0% 0%
Federal tax rate for long-term capital gains (assets
held for more than one year) and qualified dividends
for individuals in the 25%, 28%, 33% and 35% brackets
(taxable income between $75,300 and $466,950 joint
and $37,650 and $415,050 single in 2016 and between
$75,900 and $470,700 joint and $37,950 and $418,400
single in 2017)
15% 15%
Federal tax rate for long-term capital gains (assets
held for more than one year) and qualified dividends
for individuals in the 39.6% bracket (taxable income
over $466,950 joint and $415,050 single in 2016 and
20% 20%
$470,700 joint and $418,400 single in 2017)
Federal tax rate on the portion of long-term gain
from real estate that represents depreciation
recapture (so-called “Section 1250 gain”)
25% 25%
Federal tax rate on long-term gain from collectibles
(e.g., art, antiques, precious metals, gems, stamps,
coins, etc.)
28% 28%
Federal tax rate on long-term gain on small business
stock eligible for the 50% exclusion
28% 28%
Standard deduction
Married filing jointly $12,600 $12,700
Head of household $9,300 $9,350
Single or married filing separate returns $6,300 $6,350
Additional amount for over 65 or blind
Married filing jointly $1,250 $1,250
Single $1,550 $1,550
Net unearned income of children under age 19 and
dependent full-time students under age 24 that
escapes the “kiddie” tax (child taxed at parent’s
marginal rate)
$2,100 $2,100
“Kiddie tax” standard deduction $1,050 $1,050
Personal exemption amount (subject to “phase out,”
as noted below)
$4,050 $4,050
Range of Adjusted Gross Income (AGI) where the
personal exemption “phases out”
Married filing jointly $311,300–
$433,800
$313,800–
$436,300
Head of household $285,350– $287,650–
$407,850 $410,150
Single $259,400–
$381,900
$261,500–
$384,000
Married filing separately $155,650–
$216,900
$156,900–
$218,150
Applicable amount of AGI after which itemized
deductions are reduced by 3% of AGI over this
applicable amount—the “Pease Limitation”
Married filing jointly $311,300 $313,800
Head of household $285,350 $287,650
Single $259,400 $261,500
Married filing separately $155,650 $156,900
Taxable wage base for Social Security and self-
employment income
$118,500 $127,200
Social Security COLA (cost of living adjustment) 0.0% 0.3%
Additional Medicare tax on wages and self-
employment income when wages and self-
employment income exceed the following
thresholds:
Married filing jointly—$250,000 0.9% 0.9%
Married filing separately—$125,000
Single/Head of household—$200,000
Medicare surtax on investment income when
Modified Adjusted Gross Income (MAGI) (which is
AGI plus foreign earned income) exceeds the
following thresholds:
Married filing jointly—$250,000 3.8% 3.8%
Married filing separately—$125,000
Single/Head of household—$200,000
Tax is assessed on the smaller of the filer’s net
investment income or the excess of MAGI over the
applicable threshold amount
Maximum alternative minimum tax (AMT) rate on
AMT income over $186,300 in 2016 and $187,800 in
2017; below these amounts, the AMT rate is 26%
28% 28%
Alternative minimum tax (AMT) exemption:
Married filing jointly $83,800 $84,500
Single $53,900 $54,300
Married filing separately $41,900 $42,250
Range of AMT taxable income where the AMT
exemption “phases out”
Married filing jointly $159,700–
$494,900
$160,900–
$498,900
Single $119,700–
$335,300
$120,700–
$337,900
Married filing separately $79,850–
$247,450
$80,450–
$249,450
Health Savings Account (HSA) annual contribution:
Family $6,750 $6,750
Single $3,350 $3,400
Additional “catch-up” contributions for individuals
aged 55 or older
$1,000 $1,000
Maximum traditional and Roth IRA contributions $5,500 $5,500
Additional “catch-up” contributions for individuals
aged 50 or older $1,000 $1,000
AGI phase-out range for Roth IRA contributions
Married filing jointly $184,000–
$194,000
$186,000–
$196,000
Single/Head of household $117,000–
$132,000
$118,000–
$133,000
Maximum elective deferrals for 401(k) plans, 403(b)
plans, governmental 457 plans and SARSEPs
$18,000 $18,000
Additional catch-up contributions for above plans for
those aged 50 or older
$6,000 $6,000
Maximum deferral for SIMPLE plans $12,500 $12,500
Additional catch-up contributions for SIMPLE plans
for those aged 50 or older
$3,000 $3,000
Maximum deferral for non-governmental 457 plans
(catch-up contribution is not allowed)
$18,000 $18,000
Maximum compensation limit for defined
contribution retirement plan purposes
$265,000 $270,000
Maximum contribution limit for defined
contribution plans
$53,000 $54,000
Defined benefit plan limit $210,000 $215,000
Maximum Qualified Charitable Distribution (QCD,
or a taxable distribution from an IRA owned by an
individual over 70 ½ that is paid directly from the IRA
to a qualified charity. QCD amount may be excluded
from income and also may be used to satisfy the
Required Minimum Distribution amount. QCD is not
taken into account in determining any deduction for
charitable contributions)
$100,000 $100,000
Maximum foreign earned income exclusion $101,300 $102,100
Business mileage rate (per mile) $0.54 $0.535
Charitable mileage rate (per mile) $0.14 $0.14
Medical and moving mileage rate (per mile) $0.19 $0.17
AGI threshold for deducting qualified medical
expenses
Under age 65 10% 10%
Over age 65 7.5% 10%
Estimated tax payments and withholding required to
avoid penalties:
Percentage of current year tax liability or 90% 90%
Percentage of prior year tax liability:
if AGI is $150,000 or less 100% 100%
if AGI is greater than $150,000 110% 110%
“General” IRS interest rate on overpayments and
underpayments
1st Q–3% 1st Q–4%
2nd Q–4% 2nd Q–TBD
3rd Q–4% 3rd Q–TBD
4th Q–4% 4th Q–TBD
Amount of compensation that triggers withholding
and FICA responsibility for domestic employees
(“nanny tax”)
$2,000 $2,000
Maximum amount of business equipment that can be
immediately expensed under Section 179 (rather than
capitalized and depreciated)
$500,000 $510,000
Maximum amount of additional first-year
depreciation (“Bonus Depreciation") applied to the
adjusted basis of qualified property
50% 50%
Medicare Part B monthly premium—premiums will
be based on modified adjusted gross income as
follows:
Less than or equal to $85,000 (single) or $170,000
(joint)—monthly premium
$121.80 $134.00
$85,001–$107,000 (single) or $170,001–$214,000
(joint)—monthly premium
$170.50 $187.50
$107,00–$160,000 (single) or $214,001–$320,000
(joint)—monthly premium
$243.60 $267.90
$160,001–$214,000 (single) or $320,001–$428,000
(joint)—monthly premium
$316.70 $348.30
More than $214,000 (single) or greater than $428,000
(joint)—monthly premium
$389.80 $428.60
Federal Transfer Tax Items 2016 2017
Top estate tax rate 40% 40%
Top gift tax rate 40% 40%
Top generation-skipping tax (GST) rate for transfers
after 12/31/12
40% 40%
Annual gift tax exclusion per donee $14,000 $14,000
Applicable lifetime gift tax exemption $5,450,000 $5,490,000
Applicable estate tax exemption $5,450,000 $5,490,000
The exemption amount does not reflect “Portability,”
which is the ability of a surviving spouse to utilize the
unused estate exemption of a spouse who died in or
after 2011.
Applicable generation-skipping tax (GST) exemption $5,450,000 $5,490,000
Transfers to a spouse during life or at death (U.S.
citizens)
Unlimited Unlimited
Annual gift tax exclusion for transfer to non-citizen
spouse
$148,000 $149,000
Reporting threshold for gifts received from foreign
corporations and partnerships
$15,671 $15,797
Reporting threshold for gifts received from non-
resident aliens and foreign estates
$100,000 $100,000
California Tax Items 2016 2017
Top California marginal income tax rate for filers
with taxable income of $1,000,000 or more. A 12.3%
rate applies to filers with taxable income below
$999,999.
13.3% 13.3%
Top California estate tax rate—due to the repeal of
the federal state death tax credit, there is no
California estate tax.
N/A N/A
Top California gift tax rate—there is no state gift tax. N/A N/A
Florida Tax Items 2016 2017
Top Florida marginal income tax rate N/A N/A
Top intangible tax rate (per value of intangible assets
owned on January 1). The tax was repealed effective
January 1, 2007.
N/A N/A
Top Florida estate tax rate—due to the repeal of the
federal state death tax credit, there is no Florida estate
tax.
N/A N/A
Top Florida gift tax rate—there is no state gift tax. N/A N/A
Illinois Tax Items 2016 2017
Top Illinois marginal income tax rate 3.75% 3.75%
Top Illinois estate tax rate (designed to absorb the 16% 16%
state death tax credit allowed under federal law before
the 2001 tax legislation); the effective rate could be as
high as 28.5%.
Estate tax exemption (lower than the federal
exemption)
$4,000,000 $4,000,000
Top Illinois gift tax rate—there is no state gift tax. N/A N/A
Maryland Tax Items 2016 2017
Top Maryland marginal income tax rate 5.75% 5.75%
Top local income tax rate (Baltimore City and
counties of Howard, Wicomico, Montgomery, Queen
Anne’s and Prince George’s)
3.2% 3.2%
Top Maryland estate tax rate (designed to absorb the
state death tax credit allowed under federal law before
the 2001 tax legislation)
16% 16%
Estate tax exemption (lower than the federal
exemption); will increase annually to equal the
federal exemption in 2019.
$2,000,000 $2,000,000
Top Maryland gift tax rate—there is no state gift tax. N/A N/A
Massachusetts Tax Items 2016 2017
Massachusetts income tax rates:
Parts A, B and C income (excluding short-term gains)
and collectibles
5.10% 5.10%
Part A income—net short-term gain and gain on all
collectibles
12% 12%
Top Massachusetts estate tax rate (designed to absorb
the state death tax credit under federal law before the
16% 16%
2001 tax legislation)
Estate tax exemption (Note: lower than the federal
exemption)
$1,000,000 $1,000,000
Top Massachusetts gift tax rate—there is no state gift
tax.
N/A N/A
New Hampshire Tax Items 2016 2017
Interest and dividend income tax rate for residents 5% 5%
Top marginal income tax rate on other income N/A N/A
Top New Hampshire estate tax rate—due to the
repeal of the federal state death tax credit, there is no
New Hampshire estate tax.
N/A N/A
Top New Hampshire gift tax rate—there is no state
gift tax.
N/A N/A
New York State Tax Items 2016 2017
Top New York State marginal income tax rate for
filers with taxable income in excess of $2,140,900
8.82% 8.82%
Top New York City marginal income tax rate 3.876% 3.876%
Top New York estate tax rate on taxable estates over
$10,100,000 (with effective rates over 100% on the
initial amounts over 105% of the basic exclusion
amount).
16% 16%
Estate tax applicable exclusion amount. An applicable
credit is allowed against the New York estate tax. For
taxable estates less than the applicable exclusion
amount, no tax payable. For taxable estates between
100% and 105% of the basic exclusion amount, credit
is phased out. No credit if taxable estate is over 105%
$4,187,500
(04/01/16–
03/31/17)
$5,250,000
(04/01/17–
12/31/18)
of the basic exclusion amount.
Top New York gift tax rate—there is no state gift tax,
although gifts made between April 1, 2014, and
January 1, 2019, will be subject to an estate inclusion
if made within three years of death.
N/A N/A
Rhode Island Tax Items 2016 2017
Top Rhode Island marginal income tax rate 5.99% 5.99%
Top Rhode Island estate tax rate (designed to absorb
the state death tax credit allowed under federal law
before the 2001 tax legislation)
16% 16%
Estate tax exemption (Note: lower than the federal
exemption)
$1,500,000 $1,500,000
Top Rhode Island gift tax rate—there is no state gift
tax.
N/A N/A
Virginia Tax Items 2016 2017
Top Virginia marginal income tax rate 5.75% 5.75%
Top Virginia estate tax rate—due to the repeal of the
federal state death tax credit, there is no Virginia
estate tax.
N/A N/A
Top Virginia gift tax rate—there is no state gift tax. N/A N/A
— Deborah L. Anderson and Mary M. Paul, EA
2017 Federal tax filing deadlines for individuals
Mark your calendars with the 2017 federal individual tax filing deadlines. Missing a
deadline may result in the IRS assessing penalties and interest.
January 17 4th
quarter 2016 estimated
income tax payment
Form 1040-ES
April 18 Income tax return for 2016
(or request for an extension
of time to file)
Form 1040
(Form 4868 to extend
deadline)
April 18 1st quarter 2017 estimated
income tax payment
Form 1040-ES
April 18 Gift tax return for 2016
(or request for an extension
of time to file)
Form 709
(Form 8892 to extend
deadline; Form 8892 is not
required if you also file
Form 4868 to extend the
deadline for your income tax
return)
April 18
(new due date)
FBAR* for 2016
(or request for an extension
of time to file)
FinCEN Report 114
June 15 2nd
quarter 2017 estimated
income tax payment
Form 1040-ES
September 15 3rd
quarter 2017 estimated
income tax payment
Form 1040-ES
October 16 Extended income tax return
for 2016
Form 1040
October 16 Extended gift tax return for
2016
Form 709
* United States persons are required to file a Foreign Bank and Financial Account Report
(FBAR) if:
1. the United States person had a financial interest in or signature authority over at least
one financial account located outside of the United States; and
2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during
the calendar year reported.
A United States person includes U.S. citizens; U.S. residents; entities, including but not
limited to, corporations, partnerships, or limited liability companies, created or organized
in the United States or under the laws of the United States; and trusts or estates formed
under the laws of the United States.
— Mary-Benham B. Nygren
2017 Filing Thresholds and Rates
Even though you are working on your 2016 tax returns, the IRS has released the 2017 tax
rates. See the tables below based on your filing status.
Single Taxpayers
If Taxable Income is Between: The Tax Due Is:
0 – $9,325 10% of taxable income
$9,326 – $37,950 $932.50 + 15% of the amount over $9,325
$37,951 – $91,900 $5,226.25 + 25% of the amount over
$37,950
$91,901 – $191,650 $18,713.75 + 28% of the amount over
$91,900
$191,651 – $416,700 $46,643.75 + 33% of the amount over
$191,650
$416,701 – $418,400 $120,910.25 + 35% of the amount over
$416,700
$418,401 + $121,505.25 + 39.6% of the amount over
$418,400
Married Individuals Filing Joint Returns and Surviving Spouses
If Taxable Income is Between: The Tax Due Is:
0 – $18,650 10% of taxable income
$18,651 – $75,900 $1,865 + 15% of the amount over $18,650
$75,901 – $153,100 $10,452.50 + 25% of the amount over
$75,900
$153,101 – $233,350 $29,752.50 + 28% of the amount over
$153,100
$233,351 – $416,700 $52,222.50 + 33% of the amount over
$233,350
$416,701 – $470,700 $112,728 + 35% of the amount over
$416,700
$470,701 + $131,628 + 39.6% of the amount over
$470,700
Heads of Household
If Taxable Income is Between: The Tax Due Is:
0 – $13,350 10% of taxable income
$13,351 – $50,800 $1,335 + 15% of the amount over $13,350
$50,801 – $131,200 $6,952.50 + 25% of the amount over
$50,800
$131,201 – $212,500 $27,052.50 + 28% of the amount over
$131,200
$212,501 – $416,700 $49,816.50 + 33% of the amount over
$212,500
$416,701 – $444,550 $117,202.50 + 35% of the amount over
$416,700
$444,551 + $126,950 + 39.6% of the amount over
$444,550
Married Filing Separately
If Taxable Income is Between: The Tax Due Is:
0 – $9,325 10% of taxable income
$9,326 – $37,950 $932.50 + 15% of the amount over $9,325
$37,951 – $76,550 $5,226.25 + 25% of the amount over
$37,950
$ 76,551 – $116,675 $14,876.25 + 28% of the amount over
$76,550
$116,676 – $208,350 $26,111.25 + 33% of the amount over
$116,675
$208,351 – $235,350 $56,364 + 35% of the amount over $208,350
$235,351 + $65,814 + 39.6% of the amount over
$235,350
The filing thresholds for 2017 will increase slightly from 2016. You are not required to file
a tax return if your filing status is Single and your gross income was less than $10,400,
Married filing jointly gross income less than $20,800, Married filing separately gross
income less than $4,050, Head of household gross income less than $13,400, and Surviving
spouses gross income less than $16,750. There are additional situations and age
requirements that may affect your filing obligation. You should contact your tax advisor to
discuss your situation.
— Kelly Acevedo
What documents do I need to prepare my income taxes?
April 18, 2017 is the due date for filing your 2016 tax return or 2016 extension. It’s not too
early to start gathering documents that you will need to provide to your tax preparer
during the first few months of 2017. Get yourself an empty, bright colored envelope or file
folder for paper documents and establish a “tax folder” on your computer for tax
documents received electronically.
Examples of information to gather in December:
Review your checkbook, credit card statements, receipts and bank transactions and
make a list of the following:
o Cash and non-cash charitable contributions
o Unreimbursed business expenses
o Daycare expenses
o Alimony paid or received
o Real estate taxes not paid out of escrow
o If paying quarterly taxes, amounts paid during the year
If applicable, obtain records relating to income and expenses for rental properties.
If self- employed, obtain records relating to income and expenses of your business.
If you purchased or sold your residence, obtain Form HUD-1 Settlement
Statement. For purchases or sales occurring after October 3, 2016, obtain your
Closing Disclosure Statement that replaces Form HUD-1.
If using a new tax preparer, obtain copies of your prior year tax return so it can be
used as a reference to your income and deductions to determine if anything is
missing for the current year.
Examples of information to gather in the first few months of 2017 that may be
received in the mail or electronically:
Forms W-2 and forms in the “1099” category. These forms will report any income
earned in 2016 (i.e. 1099-INT interest income, 1099-DIV dividends, 1099-R
Retirement Distributions, 1099-MISC rents, royalties, nonemployee compensation,
1099G government payments, tax refunds, unemployment compensation, 1099-B
sales of securities).
Form 1098 reporting the amount of mortgage interest paid in 2016.
Forms in the “1095” category documenting health coverage (i.e. 1095-A, 1095-B,
1095-C).
Forms in the “K-1” category reporting income and deductions from partnerships, S
corporations, Trusts, and Estates.
Forms related to education expenses and credits (Form 1098-T Tuition Payments
Statement, Form 1099-Q withdrawals from a 529 plan, Form 1098-E Student Loan
interest statement).
Be prepared! Assembling tax information is easier now when transactions are fresh in your
mind and documents are being received on a daily basis by mail or electronically. This will
eliminate lost documents and a last minute scramble for information.
— Alyson L. Stevenson
Is your ITIN expiring on January 1, 2017?
Individual Taxpayer Identification Numbers (ITINs) are obtained by those persons who
are not eligible for a Social Security Number (SSN) but are required to make a tax filing or
have a payment obligation under U.S. law.
The IRS recently added an expiration period for ITINs. The following ITINs will expire on
January 1, 2017:
•ITINs that have not been used on a tax filing in the last three years;
•ITINs with middle digits of either 78 or 79 (or 9NN-78-NNNN and 9NN-79-
NNNN).
If you have an ITIN set to expire, you should file for a renewal of your ITIN, using Form
W-7, as soon as possible. Any delay in your ability to use your ITIN on future tax filings
can cause refund delays and/or denial of tax benefits.
It is currently taking the IRS seven (7) weeks to process accurate ITIN renewals. The IRS,
however, anticipates that the time frame will expand to as much as eleven (11) weeks
during the January to April tax season.
— Christopher F. Caldwell
Estate and Gift Planning
Why create an irrevocable life insurance trust?
An irrevocable life insurance trust (ILIT) is used to remove the proceeds of a life insurance
policy from an individual’s estate for estate tax purposes. As its name indicates, an ILIT
may not be amended or revoked by the grantor of the trust, and it typically holds
insurance policies on the grantor’s life.
The ownership of the policy is transferred from the grantor to the name of the trust, and
the trust is then also named as the primary beneficiary of the policy. Upon the death of the
grantor, the death benefit is paid out to the trust and passes in accordance with its terms.
Since the ILIT is the legal owner of the policy, the proceeds are not included in the
measure of the grantor’s gross estate and are therefore not included for estate tax purposes.
For decedents with sizable estates that may otherwise be subject to a state or federal estate
tax, an ILIT is a useful planning vehicle to help transfer wealth and liquidity to lower
generations without the burden of estate tax.
It should be noted that upon the initial transfer of the policy to the trust (and also
subsequent additions made to the trust to pay insurance premiums) a portion of a
taxpayer’s lifetime exemption (currently $5.45M in 2016) may be utilized and the transfers
must be reported on a gift tax return. The transfers may also be subject to the generation-
skipping transfer (“GST”) tax and a lifetime GST exemption may be allocated to the trust.
— Julie M. Wood
What is a Dynasty Trust?
A Dynasty Trust is a type of irrevocable trust designed to last for a long time (potentially
forever) and is a valuable tool for wealthy individuals to benefit their families for
generations to come.
Traditionally, trusts were subject to the “rule against perpetuities,” which meant that
property could be held in trust only for a limited period of time usually determined by a
particular formula. Recently, however, many jurisdictions, including trust-friendly states
such as Delaware and New Hampshire, have abolished the rule against perpetuities
(meaning some trusts can last forever) or substantially lengthened the perpetuities period.
In order to take advantage of a Dynasty Trust, a trustee located in the desired state
(typically a bank or trust company) must be appointed.
One common structure is to hold the Dynasty Trust as a single “pot” for all of the grantor’s
descendants until his or her death. At the grantor’s death, the Dynasty Trust divides into
separate share trusts for each child of the grantor. At the death of each child, the trust is
further divided among each branch of the family, possibly in perpetuity. At the death of
each generation, assets continue to be held in further trust without the imposition of any
transfer tax. In addition to being extremely tax efficient, a Dynasty Trust should protect
beneficiaries from creditors, including divorcing spouses.
The usual Dynasty Trust is created using all or a portion of the grantor’s $5.45 million
exemption from federal gift and estate tax. The grantor also applies his or her exemption
from generation-skipping transfer (GST) tax so that distributions made to grandchildren
and more remote descendants are never subject to federal transfer tax. Many times the
Dynasty Trust is designed as a “grantor trust” for federal income tax purposes, meaning
that the grantor will be responsible for paying the income tax generated by the Dynasty
Trust on his or her personal income tax return, which allows the Dynasty Trust to grow
even further.
It may also be possible to structure a Dynasty Trust as a spousal limited access trust or
“SLAT” under which the grantor’s spouse is a beneficiary during his or her lifetime. This
allows an opportunity for trust funds to be distributed to the grantor’s spouse in case those
funds were ever needed again in the future.
— Kenneth F. Hunt
2017 Estate and Gift tax exclusion amounts
On an annual basis, the Internal Revenue Service (IRS) reviews the Consumer Price Index
to determine if the Estate and Gift tax exclusion amounts should be adjusted for inflation.
For 2017, two of the three estate and gift tax exclusion amounts will be increased.
Annual gift exclusion
The annual gift exclusion is the amount that an individual donor is allowed to exclude per
donee from the donor’s taxable gifts in a calendar year. For 2016, the annual gift exclusion
amount was $14,000. The annual exclusion amount for 2017 will remain at $14,000.
Annual gift exclusion for non-U.S. citizen spouses
This annual gift exclusion applies to the amount that a U.S. citizen spouse can transfer to
his or her non-U.S. citizen spouse without a gift tax consequence. In 2016, this exclusion
was $148,000. In 2017, the exclusion will increase by a thousand dollars to $149,000.
Note: there is no limit on the amount that a U.S. citizen spouse can transfer to a U.S.
citizen spouse in a calendar year.
Lifetime exclusion
The lifetime exemption is the combined amount that an individual can transfer during the
individual’s lifetime and/or at death that is excluded from the gift and estate tax. In 2016,
the lifetime exemption was $5,450,000. The lifetime exemption will increase in 2017 to
$5,490,000. The Generation-Skipping Transfer (GST) tax exclusion will also increase to
$5,490,000.
The annual, lifetime and GST exclusion amounts present opportunities for individuals to
transfer wealth to family and loved ones without paying gift or estate tax.
— Mary-Benham B. Nygren
For more information, please contact:
— Kelly Acevedo at kacevedo@nixonpeabody.com or 585-263-1057
— Deborah L. Anderson at danderson@nixonpeabody.com or 617-345-1206
— Christopher F. Caldwell at ccaldwell@nixonpeabody.com or 617-345-6058
— Kenneth F. Hunt at kfhunt@nixonpeabody.com or 585-263-1230
— Mary-Benham B. Nygren at mnygren@nixonpeabody.com or 617-345-6165
— Mary M. Paul at mmpaul@nixonpeabody.com or 585-263-1371
— Thomas A. Stedman at tstedman@nixonpeabody.com or 585-263-1029
— Alyson L. Stevenson at astevenson@nixonpeabody.com or 585-263-1262
— Julie M. Wood at jwood@nixonpeabody.com or 617-345-1190
NP Trust & Estates Blog
Achieving success in estate planning, wealth management and tax minimization.