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On June 21, 2019, the Supreme Court of the United States issued a unanimous opinion finding that North Carolina’s imposition of an income tax on trusts based solely on the residence of a trust’s beneficiaries is unconstitutional. While Kaestner 1992 Family Trust presents an obvious win for taxpayers, its application beyond the state of North Carolina could be limited.

2018 brought radical transformation in the federal tax landscape. The effects continue to cascade through the economy, and individuals, families and businesses are striving to find equilibrium amid the change. Of course, radical transformations can occur at the individual level as well. A good wealth plan anticipates personal disruptions, transitions and surprises. From this context, this annual outlook highlights six salient themes.

In Part 1, we explored the potential tax pitfalls of the Tax Cuts and Jobs Act of 2017. In Part 2, we looked at new income tax planning opportunities.

There has been much discussion regarding the Qualified Opportunity Zone program established via the Tax Cuts and Jobs Act in 2017 because of potential tax advantages. This program aims to incent long-term private sector investment in low-income communities nationwide while allowing investors to potentially defer and partially reduce capital gains tax by investing capital gain amounts (or a portion) in Qualified Opportunity Zone (“QOZ”) through a Qualified Opportunity Zone Fund.

The IRS released its second set of proposed regulations under Internal Revenue Code, Section 1400Z-2, Special rules for capital gains invested in opportunity zones. While some questions remain unanswered, it provided much needed guidance for investors, fund managers, developers, and sponsors pertaining to qualified opportunity zone business property, the treatment of tangible leased property, Section 1231 gain, the 90-percent asset test, and more. The guidance is generally taxpayer-friendly and provides the flexibility that businesses and investors were seeking.

A Domestic Asset Protection Trust (DAPT) provides an opportunity to protect your assets from the claims of third-party creditors, which makes it a powerful tool to enhance your estate plan. Because DAPTs require giving up some control over your assets, they are not right for everyone. But they can provide protection for individuals in careers with high risk exposure or those looking for a prenuptial agreement alternative.

The role of the tax function is changing. Digitization is shrinking the globe and making everything more connected. Tax regulation and legislative changes are requiring companies to have processes and systems in place in order to comply. Today’s tax professional is charged with advising senior management on the tax implications of strategic business decisions while simultaneously leading initiatives to directly support the organization’s financial objectives and help facilitate growth. Demands on tax professionals have never been higher.

Many early-retirement Boomers feel comfortable that their estate plan is in order, having put their estate plan in place when they had younger children. With adult children, and the increase in the estate and gift tax exemption amounts, many feel that there is little planning to be done. However, upon review, there are plans that may need adjusting due to the recent changes in tax laws. Specifically, those plans with the AB Trust/Bypass trust structure.

It's clear that tax reform is just one manifestation of the changes happening across the tax function. What was once a relatively routine field now faces shifting regulations and compliance issues both at home and abroad. The role of the tax professional is changing from numbers-cruncher to strategic leader, and adept tax professionals in 2019 and beyond will need to prioritize adaptability, process efficiency, data analysis, and effective communication around total tax liability to maximize their impact.

When it comes to updating your estate plan, it’s more than just document preparation. It’s also about updating and distributing your health care documents, preparing your agent to conduct business on your behalf at the appropriate time, and reviewing asset titling and beneficiary designations.