No one can predict the future, but it appears likely that we’ll see some major changes the federal estate tax law following President-elect Trump’s inauguration on January 20th. A repeal of the federal estate tax has been discussed, along with what I’ll call an alternative system whereby certain unrealized capital gains are taxed at death. Another possibility (especially if the federal estate tax were to be repealed) would be a renewal of the “carryover cost basis” rules that were temporarily in place in 2010, or in other words, no more step-up in basis at death. While it is good to be prepared for anticipated revisions in the laws, I would not suggest making any changes to your estate plan for estate tax planning purposes until we know for sure what legislation may get passed and/or repealed later in 2017.
No one has a crystal ball, but that does not mean we should not keep our eyes and ears open. Given the drama surrounding the 2016 presidential election, there is one certainty…there could be some MAJOR changes in the federal estate tax regardless of who wins the election. Mr. Trump’s plan proposes to nearly eliminate the federal estate tax (taxing only capital gains held on the date of death over $10 million) whereas Mrs. Clinton’s plan proposes to restore the federal estate tax to 2009 level (a $3.5 million exemption) with an increase in the tax rate. I have been asked on multiple occasions how a change such as this would affect “Portability” under the 2013 American Taxpayer Relief Act.
It has been widely reported that popular musician Prince died in late April without a Will or any estate planning documents--why should this matter to a Tennessee resident? The simple answer, if you die without a Will or other valid estate planning document, all important decisions are taken out of your hand, including:
On many occasions I hear from clients and potential clients that they have given certain assets to their children based on advice from someone with claimed experience/expertise in estate planning; on many occasions, the reasons given are to protect the parent’s assets and to save money. But transferring assets to children is not that simple and has many risks you may not be aware of that can fail to protect the asset(s) and cost more money in the long run (saving a $1,000 legal bill but incurring $27,000+ more in income taxes down the road).
Some valuable pieces of an individual’s estate do not pass pursuant to their estate planning documents, and this portion of one’s overall Estate “Plan” is often overlooked. These assets typically include: Life Insurance proceeds, Retirement Plans Accounts, IRAs, and most all other accounts held at financial institutions. This major portion of an individual’s estate plan is often overlooked and should be given careful consideration over and above just making sure you wrote someone’s name on the “designated beneficiary” line.
A lot of clients have approached me after emotional battles in the various Probate Courts of Tennessee and asked how can they prevent their beneficiaries being subject to such Probate Court proceedings? As with most legal questions, there is no simple answer. My first recommendation is to always consider an “in terrorem” clause in their estate planning documents. An “in terrorem” clause in its simplest form is a “no-contest” provision—if a beneficiary files any contest to your estate planning document (either Will or Trust), this clause automatically reduces their bequest to a nominal sum or eliminates them as a beneficiary altogether (treating them as if they predeceased you), just for contesting your estate plan (absent good faith and probable cause as described below).
Because of Tennessee’s repeal of the State Gift Tax and the pending repeal of the State Inheritance Tax after January 1, 2016, you may have overlooked tax planning opportunities that exist in your current estate plan.
According to Forbes Magazine in 2013, only 1/3 of family businesses successfully make the transition to the second generation. Don’t let your family business join the 2/3’s that fail. With a few easy steps, you can plan for a smooth and successful transition from one generation to the next.