Recent Developments

Do we still have an estate
tax? We might not by the time you read this. The latest estate tax proposal
would exclude $5 million from estate tax for each person, and let the surviving
spouse use any remaining exclusion from the first to die spouse. This would be
an effective $10 million in assets that could pass free of federal estate tax without
even requiring a bypass trust under your will. The rate was proposed to be
reduce on estates of $25 million or less to the same rate as capital gains tax,
currently 15% (scheduled to increase to 20%), and double that on larger estates
(which is still much less than the current rate).  Whether this bill or some variation passes, bear in mind
that estate planning is much more than saving estate taxes if done properly.
Effective estate planning is never one-dimensional. It requires addressing
asset protection, coordinating insurance and investment planning,  succession planning for a business or
professional practice, influencing how your heirs will use the money,
protecting loved ones, income tax planning, and much more.  Much will change, but the need for
planning will not. Example: If your estate is not taxable for estate or GST purposes,
you could bequeath all assets into a dynasty trust to protect them from any
future estate or other tax, save state income tax, protect assets from heirs’
divorce and creditors. This type of planning remains limited because of the
costs of the GST tax. Lifting that burden means more planning, not less. More
benefits, not just less tax. Powers of attorney often had elaborate gift
provisions. Eliminating them might harm your heirs in the event of your
disability, so simply deleting those clauses because of the inapplicability of
a tax advantage could be a huge mistake. Thoughtful planning will remain
important. Even if the estate tax is repealed, it won’t simultaneously repeal
our litigious legal system, so protecting assets will remain a priority. That
means trusts will continue to be the vehicle of choice for gifts and bequests,
but they will be modified to address the new tax landscape. Caution – if the
estate tax wanes, might the government re-emphasize income tax increases to
raise revenues? If so, family partnerships and LLCs will have a different
focus. Forward thinking taxpayers will lay that ground work now.