Uncertainties and Opportunities


Lee Stautberg, Dinsmore & Shohl, LLP

The recent Presidential race and general tenor in Washington, the fact that the markets hovered near all-time highs while interest rates hovered near all-time lows and the constantly changing tax code raise a number of concerns for families and businesses.  Even though we cannot predict the future, we can take advantage of the current federal and state laws to prepare for the future and protect our families.  Let’s consider three opportunities that may be available to you or your family. 

1. “Permanent” Estate Tax Relief and Reduced Tax Rates.  As part of a 2013 compromise bill reached to avoid the “fiscal cliff,” the highest rate on estate taxes was set at 40% and the Federal estate tax exemption increased to $5 million dollars and is indexed for inflation.   In 2016, the estate tax exemption sits at $5,450,000 per individual, or $10,900,000 for a married couple.   Just as important, the exemption can be transferred between spouses rather than the prior regime which was a “use it or lose it” system.  These estate tax exemptions are supposed to be “permanent.”  Nonetheless, for the past two years, President Obama’s budget has included a provision to reduce the exemption to $3.5 million dollars and remove the inflation adjuster.  Looking forward, our President-Elect, Donald Trump, has made the repeal of the estate tax a part of his agenda.  If, how soon, and exactly how any estate tax repeal would be implemented are open questions.

Also, President-Elect Trump has declared that his agenda includes lowering individual and corporate tax rates.  For those who believe tax rates will be lower in 2017, they may want to take a gamble on the prospect of lower-rates and defer income to 2017.

2. IRS Proposed Regulations. In early August, the Internal Revenue Service issued proposed regulations to Section 2704 of the Internal Revenue Code.  If finalized, these regulations may impact the valuation discounts on the transfer of family controlled entities.  In essence, the proposed regulations would disregard certain transfer restrictions or applicable discounts on the transfer of family controlled entities.  Many public interest groups have voiced concerns that, if finalized, these proposed regulations will be “unfair” to family owned businesses and could make it harder to transfer businesses to future generations.  However, since the issuance of these proposed regulations, the IRS has made numerous public statements that the regulations are not intended to eliminate traditional valuation discounts applicable to the valuation of family controlled entities related to lack of control and lack of marketability.  In any case, the IRS seems to be in no hurry to finalize these proposed regulations and due to the up- coming changes in the Presidential administration, it is unlikely that these proposed regulations will be finalized anytime soon.  So, there is time to carefully review your estate and business succession planning to ensure that you can take advantage of the current law. 

3.Stable Accounts. For families caring for loved ones with disabilities, there is a new Ohio program to help you set aside funds.  The new STABLE Act allows individuals with qualifying disabilities and their families to save and invest money through special investment accounts without losing eligibility for government benefits, including Medicaid.  

An individual has a “qualifying disability” if he or she developed the disability before age 26, has been living with the disability for at least one year or expects the disability to last for at least one year, and meets one of the following criteria: he or she (i) is entitled to Supplemental Security Income because of the disability; (ii) is entitled to Social Security Disability Income because of the disability; (iii) has a condition listed on the Social Security Administration’s List of Compassionate Allowances Conditions; or (iv) is able to self-certify a disability or diagnosis.  Self-certification simply requires that the individual agree to the following statements when enrolling for a STABLE account: (i) the individual has a written, signed diagnosis from a licensed physician; and (ii) the individual is either blind or has a medically determinable physical or mental impairment that results in marked and severe functional limitations.  Proof of the diagnosis is not required at the time an individual applies for a STABLE account, but a copy of a physician’s diagnosis must be provided upon request. 

Common examples of qualifying disabilities include autism, cancer, cerebral palsy, cystic fibrosis, Down syndrome, epilepsy, multiple sclerosis, sickle cell disease, and some mental disorders.

The program allows participants to select from five investment options and contribute up to $14,000 per year to the account (up to $426,000 total).  Contributions to the account, investments within the account, and qualifying distributions are not treated as income to the participant and do not count against the participant’s eligibility for certain government programs.   Qualifying distributions include expenses for the participant’s health, education, housing, transportation and basic living expenses.  

Any eligible individual, the parent or guardian of an eligible individual, or the holder of a power of attorney for an eligible individual can establish a STABLE account.  Although it is an Ohio program, residents of all states may open an Ohio STABLE account.  For more information or to set up an account, go to www.stableaccount.com.

 Even in this era of uncertainties, we have many opportunities to take advantage of current laws to provide for ourselves and our loved ones.  The key is to take time out to plan and make the most of these opportunities.