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An Estate Planning Attorney Can Explain New Federal and New Jersey Tax Laws

Significant changes in the law mean it is a good time to meet with your estate planning attorney.

The tax changes recently signed into law create a need to go to an estate planning attorney to make sure your estate plan is still optimal for you and your family. Forbes offered some suggestions of things to talk to your attorney about in "5 Questions to Ask Your Estate Planner After the New Tax Law," including:

• You need to know if the new law effects your estate plan at all. 
• If you are married, you will want to discuss what the new law means for spousal “portability” and how that could impact you and your spouse.
• Many states tie their state estate tax exemption to the federal exemption and you will want to discuss whether yours is one of them.
• Have the attorney review your plan to make sure it is still optimal for what you want to do.
• Before leaving your attorney's office, ask the attorney when you should come back and review your plan again. Estate plans should always be periodically reviewed with an expert, in case there are other changes that need to be addressed.

Reference: Forbes (January 9, 2018) "5 Questions to Ask Your Estate Planner After the New Tax Law."

Take a Careful Look at the New Tax Law Before Changing Your Estate Plan

A good estate plan should not operate in a vacuum.  A comprehensive estate plan avoids generalizations about tax laws and creates a unique plan that will work for your family, and the recently passed Federal tax law creates many challenges, according to Financial Planning in "Avoid 'dangerous' planning generalizations after new tax law."

One of the more important things to keep in mind is that public opinion polls suggest that the new tax cuts are unpopular.  If they remain so, then it is possible that in 2020 things could easily swing back the other way.  The tax cuts could be reversed and there might even be tax increases.

The biggest challenge professional estate planners face now is getting clients to understand that a large estate tax exemption does not solve all estate-planning issues.  Many people will foolishly believe that they do not need professional estate planning advice because the estate tax exemptions have been increased.

However, estate planning was never just about taxes.  Everyone needs some level of estate planning, and the new tax law has not changed that simple fact. 

Comprehensive estate planning consists not only of tax planning, but also of planning for the many non-tax related and personal issues that may arise in any situation (regardless of a person’s wealth).   

Therefore, you might want to be cautious before making too many sweeping changes to your estate plan, especially if they are irreversible.   

An experienced estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Financial Planning (Jan. 3, 2018) "Avoid 'dangerous' planning generalizations after new tax law."

Resurrection and Taxes

It might not be possible at this time to pass away and be brought back to life years later, but it could be some day.

A relatively small group of people is determined to prove that human remains can be frozen and brought back to life later by scientists. If they are brought back to life, the theory is that scientists would cure such people of any diseases that led to their deaths.  The process is known as cryogenics.

Most experts say it is impossible.  However, that has not stopped the believers. Many have made plans to have their bodies frozen and preserved after they pass away.

It is impossible to determine where medical science will go. Perhaps, it would be possible someday to bring frozen bodies back to life, and that could create challenges for tax authorities and estate planners as Wealth Management discusses in "Do Zombies Pay Taxes?"

One of the bigger questions is how the estate of a person who dies and is expected to come back to life later, should be taxed and distributed.  Governments will have to wrestle with whether any transfer taxes should apply.

The challenges are even greater for people planning their estates.  They will need to decide how much of their assets should be set aside for their own future life and how much should be distributed to their families in the interim.

These challenges are not insurmountable. They are also not something that most people need to concern themselves at this time. In the future, such estate planning challenges might be something for which people need to plan. Or perhaps not, if the experts are correct.

Reference: Wealth Management (Dec. 20, 2017) "Do Zombies Pay Taxes?"

There Is Much More to Estate Planning Than Estate Taxes

The New Jersey Estate Tax is currently scheduled to be fully repealed on January 1, 2018.  However, some sources have postulated that, due to budgetary and fiscal concerns, the New Jersey Estate Tax may not end up being repealed in 2018 as originally planned.  Additionally, the extent to which the Federal Gift/Estate Taxes may be impacted by the pending GOP tax bills is also subject to speculation at this point.  Unfortunately, my crystal ball is not working well, so I simply do not know what will happen.

However, despite all this uncertainty on the tax front, people should not forget that Estate Planning involves a lot more than tax planning.  “Estate planning” is about making sure that the assets people accumulate during their lives are properly and efficiently distributed to their beneficiaries in accordance with their desires.  Comprehensive estate planning consists not only of tax planning, but also of planning for the many non-tax related and personal issues that may arise in any situation (regardless of a person’s wealth).   Among other things, tax issues certainly do not impact family dynamics, and tax laws simply do not change most people’s goals of creating an estate plan that is appropriate for their beneficiaries, does not create division in the family, and does not lead to lawsuits among the beneficiaries or between beneficiaries and an Estate’s representatives.  

When all is said and done, creating and implementing an estate plan that addresses non-tax issues can be more challenging than dealing with tax laws.  A well thought out estate plan will be beneficial no matter which way the tax winds blow.

An experienced estate planning attorney can assist you with developing a customized estate plan that is specifically designed for your unique circumstances. 

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IRS Makes Annual Inflation Changes

New figures are important to estates, as well as for estate planning.

The IRS has announced some important changes in tax adjustments and deduction limits based on inflation. They can 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.

An experienced estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and takes the new IRS rates into consideration.

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

How Should Retirees Prepare for Tax Reform?

Even though federal tax reform legislation is an uncertainty, the elderly can prepare for possible changes.

As the possibility of federal tax reform looms, people in retirement do have some options that could prepare for potential changes, according to USA Today 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 income 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."

Estate Planning Still Vital Despite Increase in Estate Tax Exemption

A slight increase could bring the Federal estate tax exemption for couples up to $11 million (if a portability election is made on the death of the first spouse).

Analysts are projecting that the IRS will increase the Federal estate tax exemption for 2018, as well as boost the annual gift tax exemption, according to Forbes in "Estate Tax Exemption To Top $11 Million Per Couple in 2018."

Analysts forecast the Federal estate tax exemption for a single person to be $5.6 million in 2018, and the gift tax annual exclusion is estimated to become $15,000 per recipient.  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.

But even if the Federal estate tax is repealed, estate planning will still be vital and necessary.  “Estate planning” is not just for the uber-wealthy (or even just for the moderately wealthy). Everyone needs some level of estate planning.  Federal gift and estate taxes are not, and never have been, the only (or even the main) reasons why everyone should engage in some degree of estate planning.  Comprehensive estate planning consists not only of tax planning, but also of planning for the many non-tax related and personal issues that may arise in any situation (regardless of a person’s wealth).  Despite the fact that less people may now need to be directly concerned about Federal transfer taxes, the need for professional estate planning and professional estate/trust administration services will always remain vital and necessary. 

An experienced estate planning attorney can answer any questions you have on the estate tax and gift tax exemptions, as well as advise you on creating an estate plan that fits your unique circumstances.

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

Charities Would Feel Impact of an Estate Tax Repeal

There is a close relationship between the estate tax and charities.

The estate tax and charities are closely linked, according to Bloomberg 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, and 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.

 

With or without the estate tax, an experienced estate planning attorney can advise you on an estate plan that fits your unique circumstances.

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

Trusts Have Benefits Other Than Offsetting Estate Tax

Estate Taxes may not exist one day; however, that does not eliminate trusts as valuable tools in estate planning.

An estate tax can take a considerable bite out of an estate, and reducing that threat is one aspect of estate planning.

However, even if the estate tax is repealed, trusts will remain valuable tools of estate planning, according to Elder Law Answers in "Are Trusts Still Useful If the Estate Tax Is Repealed?"

Among other things, revocable trusts do not have to go through the probate process, which can be expensive and time-consuming, depending on the State in which you live.

Trusts can also be used to pass your assets to beneficiaries in a controlled way and only after certain conditions are met.  Trusts are an extremely versatile estate planning tool and can provide numerous benefits regardless of whether there is an estate tax.

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

Elimination of Estate Tax Does Not Eliminate Estate Planning

Estate Planning remains important, even if the Estate Tax is eliminated.

The elimination of the Federal Estate Tax is included in the current President's one-page tax plan proposal.  However, the path forward is not simple, according to Financial Advisor in "Estate Planning: It's Not Over."

Even though a part of modern estate planning is planning around the Estate Tax, there are many other issues to address in a comprehensive estate plan. 

Comprehensive estate planning consists of addressing many personal and non-tax related goals.  

Estate plans should be specifically designed for each person’s unique circumstances, and comprehensive professional estate planning services are vital to the proper implementation of everyone’s estate plan. 

Reference: Financial Advisor (April 3, 2017) "Estate Planning: It's Not Over."