Writing Your Tulsa Estate Planning Blog

While it is not yet certain what might be contained in the anticipated federal tax reform legislation or even if anything at all will pass, there are a few things that retirees can do to prepare for changes.

Whenever Congress is talking about reforming taxes, the best advice is usually one word long: wait.

Tax reform is promised so often without anything of much importance passing, that it is usually not a good idea to make big estate planning changes until legislation actually passes.

Now, however, with Republicans controlling both chambers of Congress and the White House, many people are eager to prepare for the promised tax reforms currently being discussed.

For people in retirement, there are some things that could be done to prepare as USA Today reports 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 Treasury Department has decided that the much dreaded Section 2704 estate tax rules are unworkable.

When the Obama administration announced changes to the valuation discounts for family businesses for estate tax purposes, known as the Section 2704 rules, there was a lot of consternation.

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 Trump administration has decided to change course, as Forbes reports in “Treasury To Withdraw Hated Estate Tax Valuation Rules.”

The Treasury Department 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.

Of course, even without the Section 2704 rules, it is still a good idea to review any previously made plans to make sure they will still be effective as intended.

Reference: Forbes (Oct. 4, 2017) “Treasury To Withdraw Hated Estate Tax Valuation Rules.”

For the last few months, there has been speculation about whether President Trump and the GOP would attempt to repeal the estate tax or drop the idea to focus on other tax ideas. For now, they have indicated that an estate tax repeal is still in the works.

The Trump administration and Congressional Republicans are very slowly inching toward tax reform. It has not always been clear what type of reforms they might be considering.

Many different possibilities have been discussed.

However, they have now released a joint framework that gives an idea of their main priorities.

Advocates for a repeal of the estate tax will be pleased to know that a complete repeal of the tax is included in the framework, as Forbes reports in “Trump GOP Tax Reform Framework Calls For Estate Tax Repeal.”

Despite including a repeal of the estate tax the framework is curiously silent on the gift tax, which 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.

There is a long way to go before the estate tax is repealed and the issue is likely to be contentious in Congress.

Reference: Forbes (Sep. 27, 2017) “Trump GOP Tax Reform Framework Calls For Estate Tax Repeal.”

Experts predict that the estate tax exemption for 2018 will increase slightly to $5.49 million for a single person and $10.98 million for couples.

The IRS has not yet announced what the 2018 estate tax exemption will be. However, expert analysts think there will be some slightly good news for wealthy people.

They predict that the exemption should increase to $5.6 million for a single person and more than $11 million for married couples.

At the same time, they predict that the annual gift tax exemption should also increase to about $15,000, as Forbes reported in “Estate Tax Exemption To Top $11 Million Per Couple in 2018.”

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, that might take the estate tax off the table.

If you have questions about your estate and how it might have an impact on the estate tax, then you should see an experienced estate planning attorney in your area.

Reference: Forbes (Sep. 15, 2017) “Estate Tax Exemption To Top $11 Million Per Couple in 2018.”

People who are opposed to eliminating the estate tax are often seen as wanting to do nothing more than to punish the wealthy. However, some of them are more concerned about the impact that estate tax repeal could have on charities.

At first glance, it might not seem like there is much of a relationship between the existence of the estate tax and charities.

The former takes money from the wealthiest estates involuntarily and uses it to help fund government programs. The latter are entities that people voluntarily give money to, in support of causes that they think benefit society.

However, the two are very much related, as Bloomberg discusses 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.

It is also not certain at this point whether they will have the votes to eliminate the estate tax either.

Reference: Bloomberg (Aug. 25, 2017) “GOP Plan to Kill Estate Tax Sets Up Charitable Giving Conflict.”

Many people get trusts as their primary estate planning instrument because of the estate tax, but trusts do have many other benefits.

With Congress taking up tax reform soon, one thing that many people are following is President Trump’s desire to eliminate the estate tax.

It is important for many people because the estate tax can take a sizeable portion out of an estate. Many people have designed their estate plans around not having to pay the tax.

If the estate tax is repealed, then people might have good reason to change their estate plans and they might decide to get rid of their trusts.

That is one of the main reasons people get trusts. They are a way to avoid the estate tax.

However, do not plan on scrapping your trust yet, since there are other reasons to get trusts than the estate tax, as Elder Law Answers discusses 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.

If it does happen, do not let it fool you into thinking you no longer need a trust.

Reference: Elder Law Answers (June 30, 2017) “Are Trusts Still Useful If the Estate Tax Is Repealed?”

You do not have much reason to fear the federal estate tax, because few estates end up paying it. Even if your estate could be affected by it, there are ways to minimize the tax and possibly to avoid it completely.

The estate tax is one of those things that gets a lot more attention than it probably should. The political parties are willing to go to war over any potential changes to the federal estate tax and there is a lot written about it when they do.

However, the American public in general does not need to worry about it too much.

The estate tax only realistically affects about 1% of American families.
The overwhelming majority of estates do not have enough assets to even begin to worry about having to pay it.

Even for those who have enough assets, there are things you can do to avoid paying any estate tax as the Marco Eagle discusses in “Tax Secrets: Slay the estate tax monster.”

If you go to an experienced estate planning attorney, you will most likely be presented with several different options to minimize any estate tax burden on your estate.

The estate tax can often be avoided completely.

It is all a matter of how you structure your estate plan and what other things you want to accomplish with your plans.

Some states also have estate taxes, so merely avoiding the federal estate tax will not necessarily help you avoid all estate taxes.

Nevertheless, estate planning attorneys can also help you with states’ taxes, should that be necessary.

Reference: Marco News (August 20, 2017) “Tax Secrets: Slay the estate tax monster.”

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.”

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.”

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.”