Articles Posted in Estate tax

As is the case with many questions regarding legal matters, this depends on some different factors. It is more simple to name your spouse directly, and your spouse could then convert your retirement plans to their IRA and take withdrawals on their schedule.

That being said, trusts have a number of advantages. Trusts can provide a lot of protections, including greater creditor protection compared to retirement funds, protection in the event your spouse becomes incapacitated, protection from scams (as seniors are often targeted), and protection of assets from having to be spent paying for long-term care. They can also preserve funds that are not needed by your spouse for your children.

Trusts can also be a useful estate planning tool. As the threshold is just over $12 million, most Americans don’t need to worry about the federal estate tax. However, many states have their own estate taxes, including some with the threshold as low as $1 million. A trust can protect this amount from being taxed following the death of the survivor of yourself and your spouse.

Estate planning attorneys saw a lot of 2020 year-end gifting. Many people are trying to plan for the possibility of some of the previous administration’s reforms being rolled back – especially the estate tax lifetime exemption (currently set at $11,000,000, adjusted for inflation) now that Biden has been elected president and Democrats control both the House and Senate.

President Biden is entering the White House during a historic and very difficult time. Many people have suffered great loss this year, especially as a result of the Covid-19 pandemic. The focus of his inauguration address was a call for unity and for getting the pandemic under control. At this point, tax reform does not seem to be one of President Biden’s first main goals.

Most legislation requires 60 votes in the Senate to pass, so Democrats would need both Republican support and to keep the support of moderates in their own party in order to pass tax reform. Although it is possible that tax reform could pass late in 2021 and be retroactive to January 1, most tax advisors don’t think this is likely. Instead, if tax reform does pass this year, many think it is more likely to happen toward the end of the year and be effective in 2022.

With the current 2020 federal estate tax exemption amount being $11.58 million, a lot less people are needing to plan around this tax while mapping out their estate plan, and more planning can be focused on saving income taxes for family and heirs. Saving income and transfer taxes has always been part of the goal of estate planning, and this was more challenging to do when both the estate and gift tax exemption level was lower.

Below are some strategies to keep in mind:

Plan gifts that use the annual gift tax exclusion. When you make transfers using the gift tax annual exclusion during life, the transferred assets as well as post-transfer appreciation generated by those assets are removed from your estate.

At our office we are frequently approached by elderly clients who are considering a second marriage later in life. A new romantic relationship can mean new friends, new experiences, increased happiness and an overall better quality of life. That being said, older couples do have some important issues to consider when deciding whether or not to take the plunge. Adult children, retirement plans, long-term care consideration and government benefits are all topics that should be discussed thoroughly before an elderly couple decides to marry.

A particularly sensitive issue is what happens to the family home. Whether the couple decides to remarry, or decides that they would prefer to just live together, it is important to plan for what will happen to the home they decide to cohabit. Seniors in this situation are faced with the competing goals of wanting to keep the equity of the home in their family, while wanting to provide a place for their significant other to live should the owner predecease. Through the use of proper estate planning such as a life estate or properly drafted land trust, this can be achieved. Care should be taken to ensure that assets are available to maintain the home and that the owner’s family understands their wishes.

Another sticky topic, is how to pay for long-term care and what happens if one spouse requires Medicaid benefits. Long-term care can be very expensive and the Illinois Department of Human Services will require that a spouse’s assets be taken into consideration even in the face of trust and prenuptial agreements when reviewing an application for Medicaid benefits. One spouse’s refusal to make their assets available for the care of another can have a significant negative impact on Medicaid eligibility. We strongly advise against later in life marriages when the need for Medicaid benefits to pay for long-term care is relatively foreseeable.

Gary Cohn, a White House advisor on tax-planning, uttered these words to a group of senate Democrats recently.  To Cohn, his comment underscored the fact that very few of the uber wealthy pay estate taxes anyway so eliminating the tax would do very little to the revenue side of the government’s ledger.

But Mr. Cohn has a point here.  Only 1 out 500 Americans are affected by the tax and those that are usually use a myriad of IRS allowed techniques to eliminate the tax all together. Some of these strategies are the following:

Using the Annual Exclusion(now $14,000 per person) to gift monies and/or assets out of their estates.