The current economic and political climate points to tax changes that could affect your estate planning strategy. Understanding these factors can help you make the right decisions in protecting your assets and helping to make the most of the legacy you leave for your loved ones.
This Might Be a Good Time to Consider Additional Gifts
With the holiday season approaching, you may be planning to make gifts to family and your favorite charitable organizations. It may be worthwhile to consider increasing your gifts this year or changing your approach to giving to include legacy gifts or transfers of appreciated assets.
Legislation passed at the end of last year allows taxpayers who do not itemize deductions to claim a limited deduction for cash contributions to qualifying charities. Traditionally, deductions for charitable gifts have only been available to those who itemize, so this deduction may not be allowed in future years and it could be a good idea to take advantage of it before the end of this year.
Changes in estate and gift tax limits and generation-skipping transfers could also make this a good time to increase gifts to family members.
To take advantage of tax opportunities through giving, particularly gifts involving appreciated assets, it is important not to wait until the last minute, or it may not be possible to complete a transfer in time to claim the benefits for this tax year.
Consider Income Tax Increases
The current administration has proposed increasing capital gains taxes as well as increasing the top federal income tax bracket. While the proposed changes may be decreased or delayed, the political debate suggests that rates will rise. This may be a good time to consult a financial advisor about timing capital gains transactions to take advantage of current rates.
An estate planning attorney could also suggest ways to minimize capital gains and income tax liability both now and in the future.
Is it Time to Consider Transferring Home Ownership?
Congress may not act on the proposal this year, but a major change in capital gains tax could be coming and it has nothing to do with the rate of the tax itself. There is a strong push to eliminate the “stepped-up basis” rule that applies when an asset such as real estate passes to another at the time of the owner’s death.
This means that when someone owns property such as the family home and that property increases in value due to inflation, the person who receives the property would have to pay tax on the increase in value, even if they do not plan to sell the property. Given the rate at which property values have skyrocketed in some places, this change could force family members to pay a huge tax bill or give up the home. To avoid this tax burden and the accompanying dilemma, it might be worth considering transferring ownership sooner rather than later.
Estate Plan Review
The constant changes in regulations and tax exemptions can dramatically alter the effectiveness of an estate plan. In addition, it is important to consider whether changes in family dynamics and other important events have altered your estate planning goals, making your current plan inadequate.
At Amy Phillips, PLLC, we often recommend an estate plan review session every three years. These sessions allow us to sit down with our clients and discuss whether the current plan meets their needs.
While the proposals above may require changes to your estate plan, the long time frame between proposal and implementation means that we can identify the consequences of these changes in advance. We can make the necessary adjustments to ensure a minimized tax burden and plan that operates in accordance with your wishes.
The review is also the perfect opportunity to ensure that you’re still happy with your trustees and beneficiaries and have the right arrangements in place regarding healthcare surrogates and financial and medical powers of attorney.
To get started, contact the team at Amy Phillips, PLLC, for a consultation.