New Administration May Mean Major Estate Tax Changes

The estate tax (also known as the “death tax”) may be on the proverbial chopping block with President-elect Donald Trump ascending to Commander-in-Chief, along with a Republican-controlled Congress. Most, if not all, Republicans oppose the estate tax. President-elect Trump’s tax plan expressly calls for an outright repeal of the tax and imposing a capital gains tax on assets left to heirs above $10 million, according to Forbes.com.

The estate tax is generally not an issue for most people due to the sizable exemptions afforded under the tax code. However, people often make the mistake that estate planning is the same thing as estate tax planning.  Rather, estate tax planning is one component of estate planning but there are many other issues your family must deal with on death as it is a major life event and you still will need to deal with local governments, financial institutions and family dynamics.

Here is a video discussing the estate tax debate:

Under current law, the estate and gift tax exemption is $5.49 million per individual for 2017, which is a slight increase from $5.45 million in 2016. That means you can leave $5.49 million to your heirs and pay no federal estate or gift tax. If you have a surviving spouse, they can carry over any unused portion of your exemptions which means a legally married couple can effectively protect $10.98 million from federal estate and gift taxes.

As you can see, the estate tax generally affects estates valued in the tens of millions. For example, in tax year 2015, nearly 5,000 estates paid $17 billion in estate taxes. More than a third of that total was raised from just 266 estates valued at $50 million or more (bringing in $7.4 billion in tax revenue).

If your estate exceeds the exempt amount, the rate is an onerous 40 percent. Fortunately, estate assets get a stepped up basis allowing capital gains to escape taxation if it is passed to heirs. So, for example, if you bought Apple stock for $50,000 and it’s worth $500,000 when you die, the $450,000 appreciation escapes the capital gains tax.

The “Compromise” Estate Tax Plan

As mentioned earlier, President-elect Trump’s compromise plan to reform estate taxation would involve repealing the estate tax and replacing it with effectively a capital gains tax at death. President-elect Trump would supplant the estate tax with a tax on capital gains held until death and valued over $10 million (though small businesses and family farms would be exempt). To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be prohibited, according to the aforementioned Forbes article.

Do Not Plan for a Standalone Estate Tax Repeal Bill

Considering the difficulty of attaining the necessary 60 votes in the U.S. Senate, the chance of anything happening on the federal estate tax will likely be part of an overall tax reform bill, according to Charles “Skip” Fox, who works for McGuireWoods in Charlottesville, Va. Though, the Republican majority in the senate could try to include an estate tax repeal in an overall tax reform bill and pass it through budget reconciliation with only 51 votes.

Have a Professional Review Your Estate Plan to Avoid Unnecessary Taxation

As you can see, taxes are a major issue when it comes to estate planning but remember it is not the only issue. You do not want your estate subjected to an unnecessary, burdensome tax if you are able to avoid it with effective estate planning strategies. This is why you should contact an experienced estate planning attorney in your area today. If you reside in McLean or Ashburn, Virginia, consider attending one of our free informational sessions to learn the truth about estate planning (registration required).

 

Trust Funding – Education is our Goal

At InSight Law, our focus is always on education. We are constantly striving to educate our clients, their families, and advisors around the community. One thing we stress is trust “funding”. Trust funding involves the coordination of all your assets with your trust. This is to ensure all the instructions you lay out in your trust will apply to your assets in the event of a disability or a death.

We often see clients that have setup a trust several years ago and never done anything with it. It eventually becomes just a pretty binder on a shelf. Then, a disability or death occurs and the family goes into that pretty binder and discovers it is rather useless. However, if your assets are properly coordinated with your trust, the trust assets will be managed by the next person you have named as trustee upon your death or disability. This makes a death or disability situation easier for your loved ones as they can avoid dealing with the courts (resulting in less cost). The trust structure also provides additional asset protection for your beneficiaries.

The key is understanding the importance of trust funding. It is important to ask yourself with every asset, “If I become disabled or pass away, what would happen with this particular asset? Who would it go to and how?”. Our InSight Law Maintenance Plan allows us to be a resource for our clients. We guide them through the funding process initially and help them as assets change overtime. It is truly a success for us if our clients understand trust funding and all the benefits they are providing their loved ones.

Note to all our InSight Law Maintenance Plan clients– you will be receiving your Asset Review Report this December. Please pay special attention to your action items listed and return your Asset Review Reports to us with updated values and any new assets. The success of your plan depends on it!

Savings Bonds – A Hidden Gem in Your Estate?

Over $9 billion worth of savings bonds and $200 million in registered Treasury securities have stopped earning interest, but haven’t been cashed in by the owners,according to treasurydirect.com. Why is so much money simply in limbo? Well, the truth is that when many people hear the term “savings bonds” they conjure an image of their grandparent giving them a piece of paper for a nominal amount of money and being told to “hold onto this since it may be valuable someday.”  Savings bonds are simply not considered “sexy” investments and therefore get tossed aside and forgotten by the purchasers and/or the heirs. Many clients who purchased savings bonds decades ago, may have even forgotten that they purchased the bonds.

Understanding How Savings Bonds are Passed On

Savings bonds are “non­probate” assets, which means they are not inherited through the provisions of a Last Will and Testament. In fact, savings bonds are more akin to retirement accounts and life insurance policies. They are “payable on death” to the person named as co­owner or beneficiary. However, it is important you actually name a payable on death beneficiary to avoid hassle for your loved ones. This means the bonds can be distributed immediately after a loved one passes on.

What To Do If You Inherit Savings Bonds

In many cases, when someone receives savings bonds from a deceased loved one, they want to go ahead and cash out. This can be a big mistake that you regret down the road. The more prudent decision would be to sit down with an experienced estate planning attorney  or a CPA to discuss your options.

Is Your Bond Still Accruing Interest?

Answering this question is a critical first step in determining the value of your savings bonds. In addition to determining whether interest is still accruing, you also need to determine the rate of interest. If your bonds were issued fairly recently, you can obtain this information electronically.  A good tool to use is the government database, Treasury Hunt. However, this site provides only a limited record and includes only Series E bonds issued in 1974 or later that have reached final maturity. For paper savings bonds, you can try to determine the value by visiting the “Savings Bond Calculator:”

http://www.treasurydirect.gov/BC/SBCPrice

Deciding Whether to Redeem or Reissue the Bonds

If you discover that your savings bonds have not yet “matured” (i.e. still accruing interest) you have a decision to make. You can redeem the bonds or get them “reissued” in your name (as opposed to the name of your deceased loved one). If you get them reissued, the benefit is that you continue earning whatever interest the bond pays until its maturity date.

Tax Ramifications of Savings Bonds

Yes, those pieces of paper that your grandparent may have given you decades ago could actually be worth a lot of money. If the total value of the savings bonds exceeds $100,000, federal regulations actually require that the bonds be administered through a court. There is a separate procedure that must be followed when smaller sums are involved and will generally enable you to avoid having to go to court.

Other Ways You Can Give Money as a Personalized Gift

On special occasions, many Americans decide to give a spouse, child, or other loved one a financial gift. However, they often fail to optimize these monetary contributions due to tax reasons. Bankrate created a guide that provides tips to help individuals maximize their monetary giving and ensure the most personal gift for each recipient. It also includes information on the benefits and tax implications for a variety of different financial gift options. Check out the guide here. 

Speak to an Experienced Estate Planning Attorney Today

As you can see, even savings bonds can get somewhat complicated and may impact your loved ones after you pass on. It is strongly recommended that you go through your records to determine if you currently have savings bonds and when the maturity date is. You should have a plan in place on how those bonds will be distributed upon your death. This is where an experienced estate planning attorney comes into play. An attorney can also be extremely helpful if you suddenly receive savings bonds and want advice on how to move forward with either redeeming or reissuing those bonds. Either way, speak to an estate planning attorney in your area for guidance.

Savings Bonds – A Hidden Gem in Your Estate?

Over $9 billion worth of savings bonds and $200 million in registered Treasury securities have stopped earning interest, but haven’t been cashed in by the owners,according to treasurydirect.com. Why is so much money simply in limbo? Well, the truth is that when many people hear the term “savings bonds” they conjure an image of their grandparent giving them a piece of paper for a nominal amount of money and being told to “hold onto this since it may be valuable someday.”  Savings bonds are simply not considered “sexy” investments and therefore get tossed aside and forgotten by the purchasers and/or the heirs. Many clients who purchased savings bonds decades ago, may have even forgotten that they purchased the bonds.

Understanding How Savings Bonds are Passed On

Savings bonds are “non­probate” assets, which means they are not inherited through the provisions of a Last Will and Testament. In fact, savings bonds are more akin to retirement accounts and life insurance policies. They are “payable on death” to the person named as co­owner or beneficiary. However, it is important you actually name a payable on death beneficiary to avoid hassle for your loved ones. This means the bonds can be distributed immediately after a loved one passes on.

What To Do If You Inherit Savings Bonds

In many cases, when someone receives savings bonds from a deceased loved one, they want to go ahead and cash out. This can be a big mistake that you regret down the road. The more prudent decision would be to sit down with an experienced estate planning attorney  or a CPA to discuss your options.

Is Your Bond Still Accruing Interest?

Answering this question is a critical first step in determining the value of your savings bonds. In addition to determining whether interest is still accruing, you also need to determine the rate of interest. If your bonds were issued fairly recently, you can obtain this information electronically.  A good tool to use is the government database, Treasury Hunt. However, this site provides only a limited record and includes only Series E bonds issued in 1974 or later that have reached final maturity. For paper savings bonds, you can try to determine the value by visiting the “Savings Bond Calculator:”

http://www.treasurydirect.gov/BC/SBCPrice

Deciding Whether to Redeem or Reissue the Bonds

If you discover that your savings bonds have not yet “matured” (i.e. still accruing interest) you have a decision to make. You can redeem the bonds or get them “reissued” in your name (as opposed to the name of your deceased loved one). If you get them reissued, the benefit is that you continue earning whatever interest the bond pays until its maturity date.

Tax Ramifications of Savings Bonds

Yes, those pieces of paper that your grandparent may have given you decades ago could actually be worth a lot of money. If the total value of the savings bonds exceeds $100,000, federal regulations actually require that the bonds be administered through a court. There is a separate procedure that must be followed when smaller sums are involved and will generally enable you to avoid having to go to court.

Other Ways You Can Give Money as a Personalized Gift

On special occasions, many Americans decide to give a spouse, child, or other loved one a financial gift. However, they often fail to optimize these monetary contributions due to tax reasons. Bankrate created a guide that provides tips to help individuals maximize their monetary giving and ensure the most personal gift for each recipient. It also includes information on the benefits and tax implications for a variety of different financial gift options. Check out the guide here. 

Speak to an Experienced Estate Planning Attorney Today

As you can see, even savings bonds can get somewhat complicated and may impact your loved ones after you pass on. It is strongly recommended that you go through your records to determine if you currently have savings bonds and when the maturity date is. You should have a plan in place on how those bonds will be distributed upon your death. This is where an experienced estate planning attorney comes into play. An attorney can also be extremely helpful if you suddenly receive savings bonds and want advice on how to move forward with either redeeming or reissuing those bonds. Either way, speak to an estate planning attorney in your area for guidance.