In the past, estate planning for lawyers was focused mainly on reducing estate taxes, without considering other important factors like income taxes, asset protection, and charitable planning. However, recent changes in laws and the economy have made estate planning much more complex. Before 2000, estate and gift tax exemption was only $675,000 and the top federal estate tax rate was 55 percent. Estate plans were very similar for all clients, with the main goal being to take advantage of the estate and gift tax exemption and remove highly valuable assets from the taxable estate. For married couples, the first goal was to use a trust or A/B plan to avoid paying estate taxes. When one spouse died, their assets would be split into two trusts to take advantage of tax exemptions. This required dividing and retitling assets to make sure each spouse had enough to fund the trusts. If a spouse didn’t use their tax exemption, it was lost. In the past, people used to give away their assets during their lifetime to avoid paying a lot of estate taxes. But in 2012, the government changed the tax laws, so now it’s not as beneficial to give away assets during your lifetime. The tax rates for estate, gift, and generation-skipping transfer taxes increased, as did the capital gains tax rate. There’s also a new 3.8 percent tax on passive income that started in 2013. These changes have made estate planning more complicated. As society and the economy change, estate planning has become more important. More lawsuits and divorces mean people want to protect their assets, so some states now allow domestic asset protection trusts. People living or investing abroad have to deal with complex tax issues. Estate planning is now more complex than before, and traditional plans may not save as much tax as they used to. Lawyers have to consider many factors when making estate plans. Portability in estate planning means transferring unused tax exemptions from one spouse to the other when one spouse dies. This can impact how assets are managed after a death. It’s important to consider factors like how much the assets might increase in value after one spouse dies, and what taxes might apply. There are different ways to plan for this, and it’s important to think carefully about which is best for each situation. If a traditional plan is used, the DS’s GST tax exemption would protect assets from taxes for multiple generations, shield assets from the SS’s creditors, and allow the DS to control where assets go after the SS’s death. If the basic portability plan is used, the DS’s GST tax exemption may be wasted, assets may not be protected from creditors, and the DS may lose control over where assets go after the SS’s death.
In some states, the DS’s state estate and gift tax exemption cannot be shared with the SS, so it’s important to consider this when making a plan. If the state estate tax exemption isn’t used, more state estate tax may be due after the SS’s death. It may be a good idea to fund a bypass trust with the state estate and gift tax exemption, and leave the rest of the assets to a QTIP trust, to avoid state estate tax and still make use of the DS’s exemption. If a surviving spouse is not a U.S. citizen, they need to set up a special trust in order to qualify for the federal estate tax marital deduction. If the surviving spouse inherits everything directly, they won’t get the marital deduction and the deceased spouse’s unused estate tax exemption amount can’t be transferred to them. For people with a lot of money, there are some advanced ways to plan for passing on their assets to their family while minimizing taxes. One way is to put the assets in a trust, which can protect them from creditors and give the person control over how the assets are used. Another way is to transfer assets to a special type of trust, which can help minimize estate taxes and allow for tax-free growth of the assets. Additionally, making gifts during life can also help reduce the value of the taxable estate. These strategies can help wealthy individuals plan for the future and take advantage of tax savings. Let’s say A owns stock worth $10 million in 2000, and it grows to $25 million by the time A dies. If A keeps the stock until death, the estate tax would be around $13.7 million. But if A gives the stock as a gift to a trust in 2000, the tax would be around $4.9 million, resulting in tax savings. However, in 2014, the tax landscape changes, and it would actually cost more to give the stock as a gift. So, it’s important to consider the tax implications before making any decisions. In todayâs tax environment, making lifetime gifts requires further planning after the initial gift. A post-gift asset exchange with a grantor trust can help reduce or eliminate capital gains tax and NIIT on assets that have increased in value. This means the trust gets assets with a value equal to the current market value, and the donor gets back the assets they originally gifted, which will be included in their estate and receive a higher value for tax purposes when they pass away. There are different ways to do the exchange, such as using cash, getting a loan, issuing a promissory note, or using a substitution power in the trust. If you give someone a valuable gift, they can put it into a special account to protect it from taxes and creditors. This can also help them save on taxes and benefit charities. It’s important to think about protecting assets from potential future creditors and to consider different legal strategies to do so. Recent changes in the law have made estate planning much more complicated. Federal and state taxes, as well as asset protection, now play a big role in making decisions. Estate planning is no longer one-size-fits-all. Practitioners have to consider many factors that were not important in the past. This makes estate planning very complex. Some states have also passed laws making it easier to protect assets. International issues and new rules on portability also add to the complexity. Overall, estate planning is now a Pandora’s box, and practitioners have to juggle many different factors when helping people plan for their future. In New York, if someone’s estate files a federal estate tax return and elects portability, they are bound by the federal QTIP election for state estate tax purposes and can’t use the state AEA. QTIP trust plans are flexible, allowing the personal representative to make full or partial elections, or the surviving spouse to disclaim assets into a bypass trust. If the surviving spouse is a non-U.S. citizen, a QDOT election must be made on the estate tax return. There are other tax implications and calculations that can affect estate planning. When someone inherits property from a deceased person, the value of the property is based on the date of the person’s death. There are different tax laws and strategies related to trusts and estate planning that can be complicated, but there are experts who can help with these matters. Nathan R. Brown is a lawyer who works in the personal planning department of a law firm in Boca Raton. He helps people plan what will happen to their money and property after they die, both in the United States and in other countries. This column was written for the Tax Law Section by the chair, Cristin Conley Keane, and the editors, Michael D. Miller and Benjamin Jablow. The Florida Bar has rules that lawyers have to follow, including doing their job well and helping the public.
Source: https://www.floridabar.org/the-florida-bar-journal/estate-planning-in-2015-and-beyond-no-longer-a-one-size-fits-all-approach/
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