Building Legacies that Last Estate Planning and Elder Law

Dodging an Unpopular Tax Provision

MP900442233The recently passed federal tax overhaul limits deductions for state and local taxes to $10,000.  It has not been popular with those affected. Estate planning attorneys might have found a way around it.

The new tax laws that were passed in December of 2017 have been controversial. Some people are very happy with the changes.  However, most people have found something they do not like about them. One of the more controversial changes was that the itemized deduction for state and local taxes was limited to $10,000.

People who own expensive property in high tax states are not happy that as it will increase their taxes, in many cases. Initially, some state governments tried to figure out a way around the limit for their citizens, but the IRS shot most of those down. Some estate planning attorneys might have found a solution though, as Bloomberg reports in "How the Rich Can Dodge Trump's Property Tax Hike."

The idea is to first create an LLC in a non-tax state such as Delaware or Alaska. Real estate ownership is then transferred to the LLC. After that, several non-grantor trusts are created. Ownership of the LLC is then divided up and transferred to the new trusts. When tax time comes around, each non-grantor trust can take a $10,000 deduction for any property taxes that were paid by the LLC. Effectively, the new deduction limit can be rendered moot.  Ask your local estate planning attorney about this practice.

The IRS could issue a new regulation against this practice.  However, estate planners think it will work.

Reference: Bloomberg (June 15, 2018) "How the Rich Can Dodge Trump's Property Tax Hike."

 

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