If you haven’t updated your will in the last three years, you may be missing out on significant planning opportunities. New rules make this a worthwhile effort.
We report frequently on how many Americans don’t understand how important it is to have a will, so now imagine how challenging it may be to convince those who have a will that it is important to get their estate plans reviewed!
Changes that have occurred since 2013 make updating a will a win-win for many high-income families, according to ThinkAdvisor’s article, “New Estate Planning Strategies for a Post-Portability World.” Review a pre-2013 estate plan with new techniques and strategies to take advantage of the new rules to minimize estate and income tax liability.
Relying on the old credit shelter trust strategy may no longer be a wise move, since there are new strategies that can produce dramatic tax savings, as well as more flexibility.
Prior to portability, which allows a surviving spouse to (almost) automatically use the deceased spouse’s estate tax exemption, credit shelter trusts were used by married couples to fully use their two estate tax exemptions. Part of the deceased spouse’s assets equal to the estate tax exemption amount would be placed into a trust created for the benefit of the surviving spouse. The remaining assets—those in excess of the deceased spouse’s exemption—would pass outright to the surviving spouse. The surviving spouse didn’t technically own the assets held in the trust. As a result, those assets would pass estate tax-free to his or her heirs. The assets that the surviving spouse owned outside of the trust would also pass estate-tax-free up to the value not exceeding the exemption amount.
For many, a credit shelter trust isn’t necessary for estate tax purposes. The “permanently” higher federal estate tax exemption is now at $5.45 million this year. Many folks don’t understand that the value of the assets (tax basis) is in effect frozen at the time they’re placed in the credit shelter trust. Thus, if those assets appreciate in value, they may create an unexpected income tax hit for the heirs. But if those assets were left outright to the surviving spouse, they’d see a step-up in basis upon the surviving spouse’s death. If the asset value has appreciated, capital gains taxes are minimized.
The interplay between potential income, estate and gift tax issues and Medicaid must always be considered when creating an estate plan. What may work well from a tax perspective can be detrimental for Medicaid eligibility. Click here to read a legal article examining some of these issues.
If it has been some time since you last revised your will and estate plan, call our office at 516-307-1236 to schedule an appointment.
Reference: ThinkAdvisor (June 7, 2016) “New Estate Planning Strategies for a Post-Portability World”