Reason #2 to Review Your Estate Plan in 2017

“Certainty? In this world nothing is certain but death and taxes.”

-Benjamin Franklin


Yes, it’s true. Death and taxes are the two things in life we can’t avoid. Even more discouraging is the fact that after a lifetime of paying taxes, it’s possible that your estate is still not safe from the far-reaching grasp of Uncle Sam when you die. Unless of course you have a strong estate plan in place. With tax laws that change almost as frequently as Kardashian spouses, it can be quite a chore to keep up. But luckily, you don’t have to. That’s our job, and it brings us to Reason #9 to Review Your Estate Plan this year:

#9 Tax Laws Have Changed

A strong estate plan will use strategies to minimize income taxes, capital gain taxes, and estate taxes. When we design an estate plan, our goal is to wipe out all capital gain taxes for your heirs. That means if you bought a piece of property (stock, real estate or any appreciating asset) in 2008 for $100,000, and when you die your kids sell it for $500,000, with good planning we can make sure they don’t have to pay taxes on the $400,000 gain. This will save them well over $100,000 in capital gain taxes. It’s a sticky area, so you definitely want a real tax expert making sure your beneficiaries receive this benefit.

IRA’s, 401(k)s, and other tax-deferred retirement accounts can also be problematic because you have not yet paid the income tax on these accounts. But thanks to tools such as our innovative IRA Inheritance Trust, we can minimize the tax burden on your loved ones and even allow them to turn your retirement accounts into their own retirement accounts.

Finally there’s the dreaded federal estate tax, which hits your heirs at a 40% tax rate if the total value of your estate is above the ‘estate tax exemption’ when you die. The estate tax exemption is constantly changing. In the last 20 years, it has fluctuated from $600,000 to unlimited (it was unlimited for one year in 2010 – the year that “lucky” billionaires like George Steinbrenner died without any estate tax). Today the estate tax threshold happens to be quite high–$5.5 million per person ($11 million per married couple). But the important question is not really “What is the estate tax exemption today?” rather “What is the estate tax exemption during the year that you die?” and nobody knows the answer to that. So the key to effective estate tax planning is flexibility. We are all about flexibility … especially when it comes to taxes! The more flexibility we can draft into a living trust, the better off you and your beneficiaries will be.

If your living trust is more than a few years old, it is likely an outdated mandatory “A-B Trust,” which means after the first spouse dies, the trust must be divided into two separate trusts. But tax laws have since changed, and the A-B trust is no longer necessary or desirable, as it puts an unnecessary burden on the surviving spouse. Then again, Congress could change the laws again someday and make the A-B Trust a favorable tax strategy again in the future. So what do you do? You probably don’t want to have to re-do your trust every time Congress changes their mind.

When we do a living trust or update an old trust, we use the “Flexible A-B Trust” strategy. The surviving spouse takes a “wait and see” approach and can decide whether or not to create that 2nd trust when the time comes. If doing so will save him/her taxes we do it. If it doesn’t, we don’t have to do it and can keep life simple.

True though it may be that death and taxes will always be around, it doesn’t mean we can’t ease their effects just a little. If you set up a living trust in the past and you haven’t reviewed it in the last three years, please make an appointment to come see us. Our lifetime service package allows our clients to visit with us every few years to make sure everything is just as it should be. Hope to see you soon!

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