The Petrosewicz Law Firm Estate Planning Blog

New Tax Law Creates New Advantages

Many estate plans will need to be changed to take advantage of the new tax laws, according to the Wills, Trusts & Estates Prof Blog in "A Gift from the New Tax Act: Kill That Trust."

One of the key changes for estate planning purposes, is that the estate tax exemption has been doubled.

This means people with estate plans that created trusts for the sole purpose of limiting their estate tax exposure may want to revisit their plans. They might now be better off revising those trusts or even getting rid of them altogether.

An estate law attorney can advise you on creating an estate plan that fits your unique circumstances and may include a trust or dealing with the doubling of the estate law exemption.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Wills, Trusts & Estates Prof Blog (Dec. 26, 2017) "A Gift from the New Tax Act: Kill That Trust."

Tax Inflation Changes for 2018

Every year the Internal Revenue Service adjusts tax exemptions and deduction limits to keep them in alignment with inflation. The changes that are made can have a big impact on estate plans, even if the actual adjustments are relatively small.

 The IRS recently announced some of those important changes. They could make a difference for people planning their estates, according to the Wills, Trusts & Estates Prof Blog in "Estate Planning Inflation Adjustments for Tax Year 2018 & 2017-2018 Priority Guidance Plan."

Changes include:

• Lifetime gift tax exemption increased to $5.6 million.
• Annual gift tax limit increased to $15,000.
• Annual gift tax limit to a foreign spouse increased to $152,000.
• Estate tax exemption increased to $5.6 million.
• Failure to file a return within 60 days of due date, to result in a penalty of $215 or 100% of amount due, whichever is lower.

If you have questions about how these changes could impact your estate plan, visit an estate planning attorney.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Wills, Trusts & Estates Prof Blog (Nov. 8, 2017) "Estate Planning Inflation Adjustments for Tax Year 2018 & 2017-2018 Priority Guidance Plan."

How the Elderly Can Prepare for Tax Reform

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.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: USA Today (Oct. 13, 2017) "Retirees: 4 ways you can start planning for possible tax law changes now."

Section 2704 Rules to Be Withdrawn

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.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

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

GOP Tax Plan Includes Estate Tax Repeal

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."

2018 Estate Tax Exemption Projections

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.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

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

Estate Tax Repeal Could Hurt 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."

Even without an Estate Tax, Trusts are Beneficial

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.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected]. 

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

Do Not Fear the Estate Tax

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.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

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

Purposeful Gifting

As long as the estate tax is with us, people will look for ways to avoid it. There are all kinds of different ways to accomplish this.

Some of these ways work better than others, depending on the size of the estate and other potential issues.

One common strategy is to give your assets away before you pass away. If they are not in the estate, then assets cannot be subject to any estate taxes.

This is known as gifting.

Many wealthy people decide to implement gifting plans to get around the estate tax. Others do not out of fear that giving assets to younger family members could lead to problems, such as younger people wasting the money or becoming disincentivized to make their own money.

There are ways around those problems, as Private Wealth discussed in "Purposeful Family Gifting."

The idea is a fairly simple one.

You can give gifts as a way to incentivize younger people to do good things. For example, a gift of cash could be conditioned on someone needing to graduate from college or hold a job for a certain period of time, before they will receive the cash.

The options are nearly limitless.

If you tell someone they can get a gift of cash if they do something, then within reason you can incentivize your family to do many good things.

If you are interested in a gifting strategy, talk to an estate planning attorney.

There are limits and tax implications to be aware of, before starting to give gifts.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: Private Wealth (July 19, 2017) "Purposeful Family Gifting."