Kent Larsson writes about the proper use of wills, advance directives, trusts, and other estate planning tools, and how how they play a vital role in you receiving proper medical care and helping you to preserve and pass on your assets to your loved ones.
The new tax law has enough big changes that you need to review your estate plan to make sure that you are taking advantage of the best options in the new environment.
It is a good idea to review your estate plan with sufficient frequency to make sure it still does what you want in the most effective way. However, you should not wait to review your plans when something significant changes.
The significant change can be something in your life, such as a new spouse, a divorce, another child or a large increase in income. The significant change can also be a change in the legal environment, as is the case with the recently passed tax overhaul.
Many estate plans will need to be changed to take advantage of the new law as the Wills, Trusts & Estates Prof Blog discusses in "A Gift from the New Tax Act: Kill That Trust."
One of the key changes for estate planning purposes, is that the estate tax exemption has been doubled.
This means people with estate plans that created trusts for the sole purpose of limiting their estate tax exposure may want to revisit their plans. They might now be better off revising those trusts or even getting rid of them altogether.
Make sure that you visit an estate planning attorney before you make a decision about your trust on your own. The doubling of the estate tax exemption is scheduled to expire in the future, so you will also want an expert opinion about how you should handle that.
Reference: Wills, Trusts & Estates Prof Blog (Dec. 26, 2017) "A Gift from the New Tax Act: Kill That Trust."
There will most likely be some discussion before a tax proposal becomes a tax law.
There may be a heavy impact from a new tax law on charities making it less likely that people will donate to them, according to Reuters in "New U.S. law could curb charitable donations."
The Senate and the House of Representatives have both passed their own version of a tax reform bill but they remain far apart and negotiations are likely.
One thing the final bill might do is double the standard tax deduction people can take instead of itemizing their deductions. That would make it less likely that people will give to charities at the end of the year to lower their tax bills.
The other worry for charities is the gradual repeal of the estate tax that has been proposed.
Wealthy people often give to charities as a way to shrink the size of their estates to avoid the tax. If that is the sole motivation for giving, then charities could lose out.
Reference: Reuters (Nov. 30, 2017) "New U.S. law could curb charitable donations."
New rates are important to estates, as well as for estate planning.
The IRS has announced some important changes in tax adjustments and deduction limits based on inflation. They can make a difference for people planning their estates, according to the Wills, Trusts & Estates Prof Blog in "Estate Planning Inflation Adjustments for Tax Year 2018 & 2017-2018 Priority Guidance Plan."
• Lifetime gift tax exemption increased to $5.6 million.
• Annual gift tax limit increased to $15,000.
• Annual gift tax limit to a foreign spouse increased to $152,000.
• Estate tax exemption increased to $5.6 million.
• Failure to file a return within 60 days of due date, to result in a penalty of $215 or 100% of amount due, whichever is lower.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and takes the new IRS rates into consideration.
Reference: Wills, Trusts & Estates Prof Blog (Nov. 8, 2017) "Estate Planning Inflation Adjustments for Tax Year 2018 & 2017-2018 Priority Guidance Plan
Even though federal tax reform legislation is an uncertainty, the elderly can prepare for possible changes.
As the possibility of federal tax reform looms, people in retirement do have some options that could prepare for potential changes, according to USA Today in "Retirees: 4 ways you can start planning for possible tax law changes now."
These things include:
• One of the changes being talked about is eliminating the deduction for state and local taxes. Therefore, people who live in high tax states, might want to start considering moving to a more tax-friendly state.
• Congress has discussed increasing the standard deduction. That might make it a good time to create a donor-advised fund to take advantage of current tax law and then donate to the fund later, as necessary.
• While there is talk of eliminating the estate and gift taxes, do not plan for it. Even if they are eliminated, they can always come back later.
Reference: USA Today (Oct. 13, 2017) "Retirees: 4 ways you can start planning for possible tax law changes now."
The government has decided that the Section 2704 estate tax rules are unworkable.
The Trump administration has decided to change course on Section 2704 rules after a close look at changes by Obama, according to Forbes in "Treasury To Withdraw Hated Estate Tax Valuation Rules."
There was a lot of concern when the Obama administration announced changes to the valuation discounts for family businesses for estate tax purposes known as the Section 2704 rules.
Many estate and legacy plans would have to be completely reworked in order to comply with the complicated new rules. It was not absolutely clear how all of those plans could be reworked and how the rules would actually be enforced. This created headaches for many people.
The Treasury Department recently announced that it will soon publish an official withdrawal of the rules, since they have decided the rules are unworkable. That means planners can continue to rely on previous valuation methods, which brings a lot more certainty about how to make legacy plans for now.
This does not mean the estate tax itself has been repealed. President Trump has indicated he wants to do so, but, in the meantime, it should help those people who are affected by the estate tax.
It might be a wise move to contact your estate planning attorney to consider an update to your plan.
Reference: Forbes (Oct. 4, 2017) "Treasury To Withdraw Hated Estate Tax Valuation Rules."
Trump administration and GOP moving toward tax reform, including eliminating estate tax.
There are many tax reform possibilities as President Trump and Congress look to the future. However, a complete repeal of the estate tax is included in the framework tax reform, according to Forbes in "Trump GOP Tax Reform Framework Calls For Estate Tax Repeal."
Despite including a repeal of the estate tax, the framework is silent on the gift tax. This tax normally goes hand in hand with the estate tax.
If the ideas in the framework were eventually to become law, that would mean pre-death transfers could still be taxed, while post-death transfers to the exact same people would not be.
Of course, releasing a framework for reform is not the same as passing legislation.
This Congress is not known for moving quickly, so tax reform is most likely still a long way off.
Reference: Forbes (Sep. 27, 2017) "Trump GOP Tax Reform Framework Calls For Estate Tax Repeal."
A slight increase could bring estate tax exemption for couples to $11 million.
Analysts are projecting the IRS will increase estate tax exemptions for 2018, as well as boost the annual gift tax exemption, according to Forbes in "Estate Tax Exemption To Top $11 Million Per Couple in 2018."
Analysts forecast an increased exemption for a single person to $5.6 million and approximately $11 million for married couples. The gift tax exemption is estimated at $15,000.
This should give wealthy people and their estate planning attorneys a little bit more flexibility, as they attempt to shrink estates to below the threshold.
While most people who might be affected by this exemption increase would prefer to see the estate tax repealed entirely, that is increasingly looking like it will not happen this year.
Congress has turned its attention to tax reform, but getting anything passed could be a long process and will likely continue into next year.
Repealing the estate tax is also controversial. If Democratic votes are needed to pass tax reform legislation, it might take the estate tax off the table.
An estate planning attorney can answer any questions you have on the estate tax and gift tax exemptions, as well as advise you on creating an estate plan that fits your unique circumstances.
Reference: Forbes (Sep. 15, 2017) "Estate Tax Exemption To Top $11 Million Per Couple in 2018."
There is a close relationship between the estate tax and charities.
The estate tax aims at taxing the largest estates to help fund government programs and charities aim at voluntarily raising money to support causes that benefit society. However, they are actually closely linked, according to Bloomberg in "GOP Plan to Kill Estate Tax Sets Up Charitable Giving Conflict."
The issue is that one of the most common ways to get around the estate tax is to shrink an estate to just below the estate tax exemption limit. A great way to do this is to give money to charity.
When the estate tax was temporarily eliminated in 2010, charitable giving was reduced by 37%.
This has many charities very nervous about the possibility that the estate tax could be eliminated again, as the Trump administration and Congressional Republicans would like.
Republicans are looking for ways to get around this problem by finding other ways to encourage charitable giving.
It is not yet certain whether they will have the votes necessary to do that.
In addition, it is also not certain at this point whether they will have the votes to eliminate the estate tax either.
With or without the estate tax, an estate planning attorney can advise you on an estate plan that fits your unique circumstances.
Reference: Bloomberg (Aug. 25, 2017) "GOP Plan to Kill Estate Tax Sets Up Charitable Giving Conflict."
The estate tax may be repealed. However, that does not eliminate trusts as valuable tools in estate planning.
An estate tax can take a considerable bite out of an estate. Reducing that threat is often a main focus of creating an estate plan.
However, even if the estate tax is repealed, the trust remains a valuable tool of estate planning, according to Elder Law Answers in "Are Trusts Still Useful If the Estate Tax Is Repealed?"
One of the best things about trusts is that they do not have to go through the probate process, which can be very expensive and time-consuming, depending on the state in which you live.
Trusts can also be kept private, so your estate plan is not shared with the general public, as is often the case with wills.
Trusts can be used to pass your assets to beneficiaries in a controlled way and only after certain conditions are met. The truth is that trusts are an extremely versatile estate planning tool and beneficial with or without an estate tax.
It is too soon to know if the estate tax will be repealed. However, whether it is repealed or not, the trust remains a valuable tool.
Reference: Elder Law Answers (June 30, 2017) "Are Trusts Still Useful If the Estate Tax Is Repealed?"
A common strategy to reduce estate taxes is to give away some assets before you pass away.
Gifting to younger family members can be used as a strategy to reduce estate taxes. However, it also comes with the potential for the recipients to become wasteful or lose their incentive. However, there are ways around those problems, according to Private Wealth in "Purposeful Family Gifting."
The idea is a fairly simple one.
You can give gifts as a way to incentivize younger people to do good things. For example, a gift of cash could be conditioned on someone needing to graduate from college or hold a job for a certain period of time, before they will receive the cash.
The options are nearly limitless.
If you tell someone they can get a gift of cash if they do something, then, within reason, you can incentivize your family to do many good things.
An estate planning attorney can advise you on a gifting strategy that fits your unique circumstances in creating an estate plan.
Reference: Private Wealth (July 19, 2017) "Purposeful Family Gifting."