Seems as though a host of new catchphrases are making the rounds when it comes to estate planning. Freebasing, stepping up, bypass trusts – the list is endless – and confusing. Ultimately, clients want to know the best way to avoid over burdensome taxes on their estates and how to ensure their survivors aren’t burdened with what should be a generous gift made by a deceased loved one.
There are a host of new tax law changes that are complicating those efforts for some. For years, estate planning lawyers encouraged clients to shift wealth earlier to avoid estate taxes and many also encouraged various trusts to sidestep those estate taxes. While that’s no longer the problem that it once was, say, in the 1990s, it has introduced several new dynamics that could prove problematic from a legal stance.
The Big Shift in Estate Planning
To get an idea of just how things are shifting, consider this:
The Tax Policy Center has released its projections associated with adult deaths in the U.S. What it found was surprising. Only 0.14% of adult deaths this year will result in federal estate tax. That’s down from down from 2.3% in 1999 and 7.65% in 1976. While the trends have told the tale, it is startling to realize just how quickly the number dropped. As it stands, each person can transfer $5.34 million to their heirs either while they’re living or at the time of their death before a transfer tax of up to 40% kicks in. Further, spouses can now shift and inherit one another’s exclusions. Projections now reveal that in ten years a couple will be able to pass on a combined $13.16 million. In 20 years, that number increases to $17.9 million–and that whole amount could be used by a widow or widower.
Recently, Paul S. Bernstein, a renowned wealth manger, spoke at a national conference. He tackled the benefits of a brand new approach to estate planning. He’s pegged it “freebasing” because of the freedom survivors have when it comes to securing income tax savings associated with a loved one’s estate.
The Dynamics of Capital Gains Taxes
When assets are sold, capital gains taxes are due on the difference between what was initially paid for it and what it sold for. If those assets were inherited, though, one can now “step up” their tax basis to whatever the value was at the time of the benefactor’s death. In other words, highly appreciated inherited property can be sold right away with no worries over capital gains – and that holds true if you hold on to the assets for a period of time. On the other hand, property received from someone who is still living, the one receiving it must take on his tax basis when the time comes to calculate capital gains. Keep in mind, one cannot inherit or be forced to take capital losses.
Of course, no one is suggesting that trusts be abandoned; in fact, they are still the powerful financial tool they have always been. Now, though, there are simply new ways of approaching tax implications. It’s a way to broaden the options for clients. The goal is to always avoid hefty tax repercussions.
Essex Junction Vermont Estate Planning Advice
As always, we strongly encourage our clients to schedule a meeting anytime they have questions or if they feel there are options they might now wish to explore. Every client’s need is different, but the goal is always the same: to ensure a family isn’t burdened by overwhelming taxes after a will has been read.
If you’re now planning to get your estate plan underway, our Essex Junction Vermont estate planning attorneys welcome the opportunity to discuss your options. Schedule your complimentary consultation today to see what tools are available to ensure the strength of your wealth and estate plan.