Taxation Strategy
Tax considerations in the estate planning process are confusing, even to tax professionals and attorneys in the field of estate planning. Taxation strategies in the realm of estate planning must take into consideration income tax consequences (including but not limited to issues related to gift tax), income tax imposed on beneficiaries, estate tax at the federal level and in some states, like New York, the state level, as well as RMD rules related to IRA’s and 401k’s. Sometimes a plan which may be effective for minimizing or eliminating federal estate taxes is not feasible when an individual’s lower state-level exemptions are more fully considered.

Changing Tax Laws
These tricky issues may still loom over New York residents who have recently fled the state in droves for Florida, in an attempt to escape an oppressive income and estate tax regime. Making these tax-related issues even more complicated is that federal and state governments are constantly making drastic changes to the taxation laws with respect to estates and trust. As some of you are aware the estate tax exemption amounts passed under Trump’s Tax and Job Cuts Act have brought the Federal Exemption levels to a current level of around $11,600,000 from around the $5,900,000 levels of the previous Obama administration.

Modify Estate Tax Plan
These levels are supposed to sunset in 2026 back to their previous levels. Significantly, the Biden administration has introduced new legislation which would drastically drop the federal estate and gift tax exclusions back to their pre-Trump levels, or lower in Fort Lauderdale, Plam Beach, Dania Beach, Hollywood Florida. They are also considering changes in the laws related to the step-up in the basis of inherited assets by beneficiaries. Estate plans drawn up only recently, may need to be modified to effectively carry out an individual’s planning goals should the new administration successfully lower the rates applicable to decedents’ estates.

Tax Disclaimers
Through the use of disclaimers, portability elections, or credit shelter planning which makes use of the full exemption amounts, a flexible plan can be drafted that will enable clients to adapt to changes in the federal estate tax scheme as much as is possible. Fortunately, considering that only around 4,100 estate-tax returns will be filed for people dying last year and of those, only approximately 1,900 will be liable for federal estate taxes, more than 99% of clients will not have to formulate their plans with the minimization of federal taxes as their primary consideration.

Trust Planning
For these individuals, other issues, such as avoidance of probate, disability of potential beneficiaries, planning for long-term care, or other family considerations such as ensuring the financial security of children from a previous marriage, may be the foremost considerations in their estate plans. Whether through trust planning or testamentary planning, we will try to plan your estate in the most straightforward, cost-efficient manner, explaining all the significant provisions in your documents in order to effectuate your goals. I will never suggest excessive planning or complex strategies which are not necessary, or which I do not think essential for you and your family’s needs.

CategoryLegal Blog