Life Insurance Is Simple and Can Benefit Estate Plan

Estate and capital gains taxes can be avoided.

Wall Street has an enhanced life insurance method that benefits wealthy people and is becoming increasingly popular, according to Barron’s in “New-ish Tax Planning Instrument Gathering Billions.”

Life insurance is a popular estate planning tool used as a relatively simple way to even out inheritances between heirs or to provide needed cash for family members, after the policy holder passes away.

A policy is purchased, premiums paid and upon the death of the policy holder, cash is distributed to the beneficiary.

Since life insurance is a death benefit, the beneficiary does not have to pay income taxes on it when it is paid out as a lump sum.

Wall Street has an insurance dedicated fund as a complicated investment tool that gets treated for tax purposes in the same way as life insurance.

It allows people to invest money that is then managed by hedge funds, without paying any capital gains tax on the investment. When the investor passes away, the accumulated funds in the account are distributed to beneficiaries and have the same tax benefits as life insurance.

Insurance dedicated funds are not new, but they have recently started becoming more popular.

An estate planning attorney can advise you on whether an insurance dedicated fund will fit your unique circumstances.

Reference: Barron’s (June 28, 2017) “New-ish Tax Planning Instrument Gathering Billions.”

Forgotten Estate Taxes

Many people who think that there is no reason that they need to plan for the estate tax, will have estates that face large estate tax bills because they have not thought about state estate taxes.

When most people think about estate taxes, if they think about them at all, they think about the federal estate tax. That is the estate tax that receives most of the attention in the national media.

For most people that is the only estate tax they do need to worry about. It is the only one that could apply to their estate.

Most people do not need to worry too much about it, since their estates will be below the historically high estate tax exemption at the federal level.

Nevertheless, there are other forgotten estate taxes that can create problems as the Wills, Trusts & Estates Prof Blog points out in “Don’t Underestimate State Estate Taxes.”

Eighteen states and the District of Columbia have their own estate taxes.

These state taxes often have much lower exemptions than the federal government.

The estate of someone who has planned only for the federal estate tax, might have to pay a large and unexpected bill to these states to cover the state taxes.

As is the case when the federal estate tax has not been adequately planned for, not planning for state estate taxes can create problems for estates that have few liquid assets and thus no simple way to pay the bill.

Fortunately, planning around state estate taxes can be done with the help of an experienced estate planning attorney.

Reference: Wills, Trusts & Estates Prof Blog (June 8, 2017) “Don’t Underestimate State Estate Taxes.”

Consider a SLAT for an Uncertain Future

It is currently difficult to know what the best possible estate planning method might be in the near future, since tax reform is uncertain. A spousal lifetime asset trust can be used as a way to plan around that uncertainty.

Given recent events in Washington, it is understandable if wealthy people are more than a little nervous about their estate plans. Just as it appeared that Congress was about to turn its attention to long-promised tax reform, President Trump has been distracted by ongoing investigations into his campaign.

While a special counsel has been appointed to oversee that investigation, a continuing steady stream of leaks has kept the pressure on lawmakers. This casts doubt over their plans for tax reform, since it is a contentious issue that has many in Congress deeply divided.

It is not clear what the President wants on some of the key items of reform.

All of this makes it difficult for many wealthy people to know how effective their estate plans might be and how to make changes to them.

Recently, Wealth Management offered a solution to the uncertainty in the form of a spousal lifetime asset trust in “SLATs Provide Flexible Plans for Many Clients.”

Like any other trust, SLATs do not have to go through probate. They also offer estate tax and capital gains tax benefits.

They key thing about them, is that they are an extremely flexible form of trust. They are more adaptable to changing circumstances than many other trusts.

That makes them a great tool for uncertain times, when no one can be certain what the tax future will look like.

If you are interested in a SLAT or want to know what your other current estate planning options are, talk to an estate planning attorney.

Reference: Wealth Management (May 15, 2017) “The Rise of Donor Advised Funds.”

Estate Tax Uncertainty

President Trump has made an official proposal to repeal the estate tax entirely, as expected. That raises more questions than it answers.

While campaigning for the Presidency, Donald Trump frequently said that, if elected, he would repeal the estate tax entirely. As with all political campaign promises, that did not necessarily mean he would follow through soon on the promise, if he did at all.

However, President Trump recently released a tax reform proposal that calls for a total repeal of the estate tax, among other things.

That does not mean that anyone should make plans for the end of the estate tax, as Investment News points out in “Trump tax proposal leaves advisers in the dark on estate tax repeal.”

The biggest issue is how an estate tax repeal will get passed in Congress, if it can be at all.

Ordinary legislation requires 60 votes in the Senate to pass without a filibuster. It is unlikely that any large tax cut on the wealthy will be able to get those votes, since Democrats have vowed to block them.

The budget reconciliation process can be used so that only 50 votes are needed to pass an estate tax repeal, but there are many restrictions on that process. The most important one is that anything passed must be revenue neutral, which means that any cuts have to be offset with tax increases elsewhere.

If the cuts are not revenue neutral, then the law must sunset after 10 years.

The estate tax would come back.

President Trump has previously proposed changing capital gains taxation to offset the estate tax repeal, but it is not known how much support that idea has in Congress.

Both the President and Republicans in Congress, would like to see many more tax cuts that also have to be paid for, which might mean the estate tax repeal could be dropped for other priorities.

Reference: Investment News (April 27, 2017) “Trump tax proposal leaves advisers in the dark on estate tax repeal.”

No Estate Tax Does not Mean no Estate Planning

With the release of President Trump’s tax plan and Republican majorities in Congress, it seems inevitable that the estate tax will go away. That does not eliminate the need to do estate planning.

A big part of modern estate planning is planning around the estate tax. Many estate planning instruments were designed to help lower the estate tax burden on wealthy estates.

Without an estate tax, it might seem that there is not much of a reason to do complex estate planning at all. Some people anticipate that will be the case soon, since President Trump has released a tax proposal that would eliminate the estate tax and Republicans who hold majorities in both houses of Congress agree with the idea.

However, it is not that simple as Financial Advisor recently discussed in “Estate Planning: It’s Not Over.”

It still is not clear when, if and how the estate tax might be repealed.

Congress could choose to phase it out over a few years or scrap the idea entirely, if they cannot agree on offsetting spending cuts or where to raise revenues from elsewhere. Senate Democrats could also mount a filibuster over any tax plan that Republicans propose, which they are expected to do.

No elimination of the estate tax is permanent, of course. Even if it passed now, it could always be reinstated when Democrats control government again.

While you might be excited about the elimination of the estate tax, do not make the mistake of thinking that means you can make your estate plans with the assumption in mind that it will go away for good, if it does at all.

Reference: Financial Advisor (April 3, 2017) “Estate Planning: It’s Not Over.”

Trump’s Tax Plan

After much anticipation, President Trump released his long awaited tax plan. While there is much for wealthy people to cheer in it, including eliminating the estate tax, no one will want to cheer too much or too soon.

Since taking office, President Trump had been promising that he would reveal a plan for tax reform. He gave very few details about it, except that it would contain some of the biggest tax cuts in history, if not the biggest.

Last week, the White House finally released the anticipated plan, although many details are still missing.

The plan, if passed, would be one of the biggest tax cuts in history. Most experts agree that it includes large tax breaks for wealthy people, including eliminating the estate tax and the alternative minimum tax.

Income tax rates on the highest earners would be cut dramatically, as would corporate tax rates.

The proposal does not just cut the taxes of the richest. Some middle class and lower income earners would see tax decreases coming from a doubling of the standard deduction.

The New York Times reported on the plan in “White House Proposes Slashing Tax Rates, Significantly Aiding Wealthy.”
The President’s tax plan has a long way to go before it is passed.

What was released was a one-page list of bullet points without any accompanying details. It will be up to Congress to determine the details of how to implement the plan.

The list did not indicate how the tax cuts should be paid for, which is likely to displease Republican deficit hawks.

Democrats are also likely to oppose the cuts and might filibuster them in the Senate.

Reference: New York Times (April 26, 2017) “White House Proposes Slashing Tax Rates, Significantly Aiding Wealthy.”

A Good Time to Get an Estate Plan

While you are busy doing your taxes this year, it is also a good time to think about getting an estate plan.

Every year at about this time, Americans breathe a big sigh of relief when they seal their tax returns and send them off to the IRS or hit “send” to file electronically. The sigh is even bigger, if the envelope did not include a check written to the government and the tax filer can expect to receive a refund in the next couple of months.

No one likes doing their own taxes.

When they are finally done, the last thing that most people want to do is to deal with more financial issues. However, it is a good idea to do one more thing, as CTV News points out in “The mistakes of not having a will.”

When you finish doing your taxes, you should get an estate plan or update your plan, if you already have one.

To do your taxes, you had to get out many of your financial documents. You have also been thinking about how much money you have and where it is all located. Doing those things is one of the first steps to getting an estate plan.

You could put all of your financial documents away and think about other things. However, if you later decided to do estate planning, you will have to start all over again.

Why not just go ahead and get an estate plan now, while things are still on your mind?

Reference: CTV News (March 21, 2017) “The mistakes of not having a will.”

The Family Vacation Home

Many people have fond memories of their vacation homes and would like to keep them in their families, after they pass away. That requires some considerations.

For many people, the best memories they have of spending time with their families is at a family vacation home when their children were still young. On vacation when people have few worries about work, they have more time to develop strong bonds with their children.

People remember these times fondly.

Many people would like to make sure those vacation homes remain in their families, so future generations can have similar experiences.

The Globe and Mail recently discussed some things to consider about how to do so in “How to keep the cottage in the family.”

While the paper is Canadian, the considerations are applicable to the U.S. and include:

•Consider any tax implications for your estate and children. Both federal and state estate taxes might need to be paid, as well as property taxes. It is important to ensure that money is available to pay those taxes.

•You might want to use a trust to pass your vacation home down to your family, especially if you have more than one child. A trust can preserve the property for generations and can also take care of any maintenance and property taxes.

•Make sure that your children want the vacation home. One or more of your children might have good reasons for not wanting it and you may need to equalize your estate to give them something else.

Reference: Globe and Mail (April 11, 2017) “How to keep the cottage in the family.”

Another Aspect of the Estate Tax Debate: Income Inequality?

A new study in the United Kingdom provides an ominous warning about the wealth prospects of younger people.

It seems we’ve been hearing the terms “income inequality” or “wealth inequality” frequently used in recent years to describe a growing economic trend of wealth concentration among a shrinking segment of the population.

These terms are now commonly used: from the work of economist Thomas Pikkety, to the Occupy Wall Street Movement, to every speech given by Senator Bernie Sanders, and even to the pages of The Economist. While we like to believe that everyone has a fair shot and that hard work is rewarded, a new study out of the United Kingdom raises some doubts.

Recently reported in The Independent article titled “Inherited wealth will decide how rich young people will become, a study warns,” the study suggests that due to rising home prices, stagnant wages and diminishing pensions, the wealth of young people will not come from their own hard work. Instead, it will be primarily determined by the inheritances they receive from their parents.

Although this study was conducted in the United Kingdom, many of the same sentiments and perceptions also exist in the U.S.. In the U.K., this is prompting many young people to oppose estate tax cuts or repeal. As one liberal Democrat was quoted as saying, “It cannot be right that the wealthiest families amass vast fortunes, while millions of young people see their incomes fall and home ownership slip out of reach.”

As the new Congress and President Trump undertake discussions about the future of the estate tax here in the U.S., the debate may turn at some point to discussions of income inequality, wealth concentration and the potential social role of estate taxation.

Reference: The Independent (January 5, 2017) “Inherited wealth will decide how rich young people will become, a study warns.”

Will Trump Kill the Estate Tax?

One of the biggest questions concerning estate planning right now, is whether Donald Trump will carry out his campaign promise to eliminate the estate tax and whether or not he should.

The estate tax is a one of those hot button issues over which political parties are sharply divided. While campaigning for the presidency, Donald Trump repeatedly said he would eliminate the tax. His is a position that most Republicans in Congress share. Now that Donald Trump and congressional Republicans have the power to do away with the estate tax, the question becomes whether they will actually do so.

Financial Advisor addressed that question in “Death to the Death Tax?”

“I think there’s a chance he [Trump] will repeal the whole thing,” said tax attorney Martin Shenkman, whose namesake firm in Jersey City, N.J., and New York City focuses on estate and tax planning for high-net-worth individuals, closely held businesses and real estate professionals.

Shenkman also said there’s speculation about abolishing the gift and generation-skipping taxes. He pointed out that, while these taxes do not raise a lot of revenue, they were at one time intended to minimize the wealth-concentration in our country. Whether or not they still serve this social purpose, or should, is up for debate.

With all of this uncertainty, no one can predict the final outcome, but, as Shenkman said, “There’s no reason to stop planning because of this uncertainty, if the end result of the planning is to get assets in a better place than they are now regardless of the tax.”

Reference: Financial Advisor (January 3, 2017) “Death to the Death Tax?”