Important Estate Planning Tips You Should Act on Now

Like all things, tax laws are constantly changing. Together, we need to respond quickly and strategically to the new developments in the tax law landscape. While you shouldn’t wait to review your estate plan in light of the passing of the Tax Cuts and Jobs Act (TCJA), making a knee-jerk reaction is rarely the best course of action, either.

The best decisions are made when we carefully analyze all angles of your estate to come up with the best strategy for you and your family. The law’s benefits will accrue most for those who take a proactive approach rather than those who wait until the last minute. Here are several reasons the tax changes need to be top-of-mind:

The increase in the standard deduction and reduction in individual tax rates means that you may now be taking home more of your weekly/month pay. Taking some of this money and investing it into your future may be a great action to take.
The elimination of the personal exemption means that depending upon your marital status and number of dependants, you may not be able to lower your taxable income as much as you had in the past. For some people, this might mean a higher tax bill, in spite of the decreased individual rates.
The limitations on deductions for state and local income taxes (SALT) means that for those in states or communities with high income taxes, your taxable income may not be reduced as much as it had been in past because you won’t be able to get credit for all of the other forms of income tax you have paid. However, if this is a concern for you, we may have some strategies (such as an Incomplete Non-Grantor Trusts) to help alleviate the new tax burden.
With the increase in the unified credit to $10,000,000, indexed for inflation, there has been a reduction in the overall number of estates affected by the estate tax. If you had previous planning centered around saving estate tax, we need to re-evaluate to make sure that the plan still works for your long term objectives now that estate tax may not be a concern. You may also want to take advantage of the increase by making lifetime gifts, especially if you had previously used up your exemption in previous years.
With the effective repeal of the individual mandate of the Affordable Care Act effective in 2019, you will now have the choice of whether or not to carry health insurance coverage without suffering the penalty of a fine. However, with no requirement for coverage, it is speculated that the cost of insurance in the marketplace could increase without the additional participants. As open enrollment occurs this fall, consider how you would cover medical expenses as you make coverage decisions.

The new tax developments are especially pertinent to you if you’re a business owner. With the possible 20% income tax deduction for pass-through entities, you’ll want to review entity selection for your business operations as soon as possible. Now is also the time to consider gifting of interests to reduce the limitations inherent in the qualifying business income calculation and to utilize the increased gift tax exemption.

If you have a “specified service business” as an attorney, doctor, dentist, or consultant, it may make sense to separate any “non-service” businesses out of your service business, such as real estate or clerical activity. Utilizing multiple trusts may also help you achieve a larger QBI (qualifying business income) deduction.

Don’t Just Think About Taxes!

The implications of the TCJA go much further than taxes alone. You will always need an estate plan that takes a thoughtful approach to asset protection, privacy, retaining control, avoiding issues like guardianship and probate, and ensuring that your loved ones are cared for in years to come. These aspects of estate and financial planning are constant regardless of fluctuations of tax reform.

Collaboration will us, as your estate planners, is critical for long-term success. We’re ready to help you plan for whatever comes next. Give us a call to set up a chat today about how we can fully protect you and your family.