On September 13, 2021, the House Ways and Means Committee inserted an amendment into the House’s Omnibus Reconciliation Bill, which included a number of proposed tax changes.  The Senate will introduce its own version of the bill, which may include some of the same proposed changes and may include additional proposed changes.  Currently, it is all uncertain.  However, if enacted, the proposed changes are going to increase taxes for “wealthier” taxpayers.  While we wait on final legislation, the following proposals are included in the House bill that specifically impact estate planning and trusts:

1. Changes to Grantor Trusts: The proposal would significantly limit the future use of grantor trusts. The proposed changes would impact grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), individual life insurance trusts (ILITs), intentionally defective grantor trusts (IDGTs), beneficiary deemed owner trusts (BDOTs) and beneficiary defective inheritance trusts (BDITs).  Distributions from a grantor trusts to a beneficiary after the effective date of the law would be treated as gifts, and sales between the grantor and the grantor trust would be treated as a sale to third party, resulting in a recognition event and payment of income tax.
2. Changes to the Gift and Estate Tax Credit and Valuation of Assets: The proposal would decrease the current exemption (currently $11,700,000) by half. After enactment the  gift and estate tax credit would be $5,000,000 a person indexed for inflation (Estimated $5,850,000). Under an additional proposal, taxpayers would no longer be permitted to utilize valuation “discounts” (lack of marketability and lack of control) for gift and estate tax purposes when transferring entities holding non-business assets (passive assets not used in the active conduct of a trade or business).
3. Surcharge on individual, trusts and estates: The proposal would impose a tax equal to 3% of a taxpayer’s modified adjusted gross income over $5,000,000 ($2,000,000 for a married individual filing separately) or greater than $100,000 for estates and trusts, excluding charitable trusts.

Planning considerations:

1. Consider making gifts now to lock in the use of the $11,700,000 credit and the use of valuation discounts. The effective date of any law change is (also) unclear.
2. Review all irrevocable grantor trusts and contact your estate planning attorney or CPA to discuss options.
3. Review all ILITs and contact your estate planning attorney or CPA to discuss additional gifts to the ILITs

Dear Clients, Colleagues and Friends,

Our firm is excited to announce its new name.  As of June 1, 2021, our firm will be known as Sullivan, McGibbons, Crickard & Associates, LLP.   The change reflects our proud addition of Jeremy B. Crickard as a new partner and new member of the firm’s executive committee.

Jeremy is an internationally known and respected estate planning attorney with 20 years of experience in sophisticated family wealth and transfer tax planning, probate and trust administration, business succession planning, fiduciary representation, and charitable planned giving.

Jeremy had previously worked together with Philip Sullivan, Jennifer McGibbons and firm administrator Patricia Garcia in the Family Wealth and Exempt Organizations Practice Group at the law firm of Luce, Forward, Hamilton & Scripps LLP for several years in the 2000’s.  Phil, Jennifer and Patti are thrilled to have the opportunity to work again with Jeremy.

Founded in 2015, the firm represents individuals, families and fiduciaries throughout Southern California in the areas of estate planning, trust and estate administrations and litigation, and probate law.

Sullivan, McGibbons, Crickard & Associates, LLP

June 1, 2021

Sullivan, McGibbons & Associates is pleased to welcome Jeremy B. Crickard as a Partner to the firm.

More information to follow soon!

Proposition 19 and the Change in Property Tax Rules:

Proposition 19 recently passed in California, and contains two main changes in California property tax assessments that may impact your estate planning.

 Changes to the Parent-Child Exclusion and Grandparent-Grandchild Exclusion

Effective February 16, 2021, Proposition 19 will substantially restrict the availability of the parent-child exclusion from property tax reassessments.

Under the current law, a property owner can leave their primary residence and up to $1,000,000 of assessed value of other real estate to their children, and the assessed value would transfer with the property to the child.

After Proposition 19 becomes effective, the inherited assessed value can only be transferred to the child (or qualifying grandchild) subject to the following requirements:

• It is the parent’s primary residence;
• The child (or qualifying grandchild) is going to use the property as their primary residence; and
• The reassessment exemption applies only to the extent the fair market value of the property does not exceed the assessed value by more than $1,000,000 (subject to inflation after February 16, 2021). If the difference in value in the property exceeds $1,000,000, the increase after the $1,000,000 is added to the tax assessed value.

The lifetime $1,000,000 non-principal residence exemption will be eliminated entirely, and any non-principal residence transfer will trigger a reassessment in property taxes.

Best practices would dictate that any changes made to your estate plan in anticipation of Proposition 19 be made well before February 15, 2021. Any transfers after February 15, 2021 will be subject to Proposition 19.

Changes to the Transfer of Taxable Value for Seniors, Disabled, or Wildfire Victims

Proposition 19 also expands the class of eligible homeowners who could transfer the tax assessment to a newly-purchased or newly-constructed home, allowing them to move to a new home in California without paying higher property taxes. Prior to Proposition 19, eligible homeowners would only be able to make this transfer once in their lifetime, to a property of equal or lesser market value, within the same county or to a county that accepts the transfer.

Effective April 1, 2021, all homeowners over age 55, certain disabled individuals, and victims of wildfire or other natural disasters, regardless of age, will be able to transfer the taxable value of their current home to a new home, including a more expensive home, anywhere in California, up to three times during their lifetime.

Please consult with your attorney regarding the effects on Proposition 19 to your estate, and what options you may have before its enactment in 2021.

The SECURE Act: How It May Impact Your Estate Plan

The Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”), became effective on January 1, 2020. With this Act, for many beneficiaries of retirement plans, payout over life expectancy has been eliminated.

Prior to the SECURE Act, any person, or particular types of trusts, could be named as the beneficiary of retirement plan assets, and the beneficiary could potentially receive distributions from the retirement assets over the beneficiary’s lifetime, also known as a “stretch IRA.”

Under the SECURE Act, the life expectancy payout has been replaced by a 10-year payout rule for most beneficiaries. The Act requires that for deaths occurring on or after January 1, 2020, most beneficiaries must take out all retirement assets within 10 years of the death of the account owner. There are some exceptions to the 10-year rule:

(1) A surviving spouse;

(2) minor children of the account owner, until the age of majority;

(3) chronically ill or disabled beneficiaries; and

(4) persons not more than 10 years younger than the plan participant.

For beneficiaries who may be within these categories, the old rule would apply and they may potentially still receive the lifetime stretch for the payout of such retirement account benefits.

Please contact our office if you would like to discuss the significance of these changes with an attorney, how they may affect your estate plan, and to assist with any revisions that might be necessary to your current estate plan in light of this change in law.

As of June 1, 2020, and in accordance with state and local directives, the firm’s physical office has reopened with limited staff during regular business hours. 

We remain fully operational, with the exception of limited client signings by appointment only. 

We are checking voicemail messages and e-mails on a regular basis and will respond promptly.

Thank you for your continued patience and understanding.

Sullivan, McGibbons & Associates LLP

In accordance with state and local directives, the firm’s physical office is currently closed as of March 20, 2020 and the entire office is on a “work from home” platform. 

We are fully operational with the exception of no in-person meetings until the stay at home order is lifted.  For new and ongoing client communications, we are offering the choice of telephone consultations or video meetings.

We continue to monitor deliveries and mail on a daily basis.  Please note that there may be delays when sending and receiving mail or deliveries in light of the pandemic.  

We are checking voicemail messages and e-mails on a regular basis and will respond promptly.  Thank you for your patience and understanding.

Sullivan, McGibbons & Associates LLP

SMA is excited to announce that Jennifer M. McGibbons has been named in Super Lawyers as the Top 25: 2019 Women San Diego Super Lawyers List!  Please find the link below for more information.

https://www.superlawyers.com/california-san-diego/toplists/top-25-2019-women-san-diego-super-lawyers/485647024b3598cebfa72f5b68546662

https://profiles.superlawyers.com/california-san-diego/san-diego/lawyer/jennifer-m-mcgibbons/916bf110-577b-4187-8f62-39185036d5f8.html?utm_source=916bf110-577b-4187-8f62-39185036d5f8&utm_campaign=v1-slbadge-top-25women&utm_content=profile

SMA is moving its office effective December 1, 2018.  Our new address is 12230 El Camino Real, Suite 130, San Diego, CA  92130.  No change to phone, fax or e-mails.

Sullivan, McGibbons & Associates LLP is pleased to announce the addition of its newest Partner, Robert C. Mardian III.  Mr. Mardian advises clients in the areas of estate planning, estate and trust administration, estate and trust litigation, and probate.  Mr. Mardian received his undergraduate and law degrees from the University of San Diego School of Law and also has his master’s degree from Georgetown University.  Mr. Mardian has been practicing law for over 15 years.  You will find Mr. Mardian’s full bio information on the firm’s attorney’s page, as well as his contact information.