There has been much discussion recently about potentially repealing the “death tax.” A bill introduced in the House on January 3, 2017 (H.R. 198) would repeal the gift, estate and GST (generation skipping transfer) taxes. A different bill introduced in the Senate January 24, 2017 (S. 205) would generally repeal the estate and GST taxes, but leave the gift tax in place with modifications. While none of these three taxes at issue are actually a tax on death (they are instead taxes on transferring wealth), modification or repeal of some or all of these taxes is possible under the current administration.
Regardless of the status of estate taxes, there are numerous benefits that proper estate planning can provide that are not transfer tax related. Here are ten categories of issues which can and should be addressed by an estate plan:
- Planning for the distribution of one’s assets. An estate plan can specify who will inherit your assets, when they will inherit them and what restrictions or protections might apply to those assets, as well as naming the people who will handle or control the process.
- Protecting assets from creditors. A married couple can protect their primary residence from creditors of either one of them by holding title as tenants by the entireties. Trusts for the surviving spouse or for children can protect assets from divorces, lawsuits or other creditor claims.
- Addressing succession issues for the family business. Who will inherit your business? Can your spouse or children run the business, or should the business be sold? How should issues of equalization and control be addressed if one child is in the business but another child is not? What about the ownership of the building that the business uses?
- Retirement planning. Proper planning for IRAs and other retirement accounts can allow funds to be withdrawn over time to reduce income taxes (which will remain in place even if estate or gift taxes are eliminated). The use of Roth accounts also should be considered.
- Premarital, post-marital and other marital planning. Planning for the allocation of assets in the event of divorce, or determining how assets will be allocated in a second marriage if one spouse dies, can avoid future conflict and reduce costs.
- Probate avoidance. Assets titled in a revocable trust do not pass through probate, so by creating a revocable trust and transferring your assets to it, the need for the public process of probate in your estate can be reduced or even eliminated.
- Generational planning. Separate and apart from transfer tax issues, many people want to provide for their grandchildren’s education or to give them assets to help fund the purchase of a home or start a business.
- Powers of attorney. Preparing powers of attorney for property and health care can allow your agent (a trusted person) to help you if you are living but unable to make decisions for yourself.
- Planning for minors or disabled people. Naming guardians, holding assets for minors or seeking to protect assets for a disabled person are key planning elements.
- Income tax planning. Income tax planning is complex and can include issues with marginal income tax rates between trusts and individuals, charitable planning, retirement planning and entity taxation issues. Further, planning for capital gains tax on appreciated assets will likely change significantly if the federal estate tax is repealed and the step-up in basis at death is curtailed or eliminated.
If your assets exceed $4,000,000 (the Illinois estate tax exemption amount) or $5,490,000 (the federal estate tax exemption amount this year), or twice those numbers for a married couple, reducing expensive transfer taxes can greatly benefit your children or grandchildren. However, even if all estate, gift and GST taxes are eliminated, estate planning remains necessary to accomplish many important goals. If you would like to discuss any of these issues and how they can apply to you, please contact us.
About Strauss & Malk LLP
Strauss & Malk LLP was established with a commitment to our clients to provide top quality legal services. We are now fifteen attorneys and eight legal assistants and we provide legal services to our clients in a variety of areas. We are an efficiently structured firm of experienced attorneys, with state of the art computer technology and electronic library services. We take pride in delivering prompt and cost-effective services to our clients.
This communication is advertising material. This is not intended to be, and cannot be, used as legal advice.
If you would like to discuss these topics please contact us at (847) 562-1400