Do I Need to be Concerned About Taxes as Part of My Estate Planning?

estate_taxFor estate tax planning, the federal tax law change a few years back brought good news for most regular folks. At the end of 2012, the federal transfer tax (which includes the estate tax and gift tax) rules were updated. Specifically, the law increased the amount of the available (gift and estate tax) exemptions, lowered the top rate, indexed the exemptions for inflation, and made the estate tax exemption “portable” to a surviving spouse. In addition, for Ohio residents, the Ohio estate tax was repealed beginning on January 1, 2013.

With the federal estate tax exemption now over $5 million per person (and increasing every year), the vast majority of people no longer need to worry about leakage in their estate plans due to federal estate (or gift) taxes. Similarly, Ohio residents need not worry about the impact of Ohio estate tax anymore. This is all very good news for taxpayers, but it raises a few related points.

1. Income Tax Planning
With estate (and gift) tax planning in many cases diminishing as a focal point, it is a good idea to consider the impact of income taxes on estate plans. For many years, income taxes have been a secondary consideration, in large part due to the much higher estate tax rates. However, since estate and gift taxes are now affecting fewer people, there is an opportunity for good income tax planning to help families reduce unnecessary leakage due to income taxes. Also, the top rates for income tax and estate (and gift) tax are about the same, which means income tax planning should not just be a secondary consideration anymore, even for large estates where estate tax may still be an issue.

2. Simplifying Your Estate Plan
Many people prepared their estate plans under prior law, which had lower exemptions and higher rates. Estate planners have used the “credit shelter” trust technique for many years as an effective tool to help minimize the impact of federal estate taxes, and to some degree, Ohio estate taxes. However, given the law changes mentioned above, folks with complex estate plans may no longer need to use complicated tools like the credit shelter trust. They have an opportunity to simplify, which is good news for everyone. While the issue of whether or not trusts should be used as part of an estate plan is beyond the scope of this blog topic, at a minimum, simplifying trust structures offers the opportunity for better ease of understanding how the trust works and much more flexibility in administration.

3. Getting All the Facts
Finally, many people over the years have used other estate planning techniques (beyond just credit shelter trusts) to help minimize the potential for estate tax leakage. In considering the impact of taxes on an estate plan, it is important to get a complete picture of all the facts. This would include understanding what tools have been used, the (approximate) value of all assets, the income tax basis of those assets, and the specific goals and objectives to achieve. By having all of the facts, it is much easier to perform good tax planning to help folks achieve their goals.

The important thing to know is that a little strategic preparation with an experienced estate planning attorney can save you and your loved ones money in the future.

About Arenstein & Andersen Co., LPA

Arenstein & Andersen Co., LPA is a Dublin, Ohio law firm that provides comprehensive estate planning and probate services. Some of our legal services relating to estate planning and probate include: preparing revocable trusts, wills, powers of attorney, healthcare powers of attorney, and living wills; assisting with advanced wealth transfer strategies, including the preparation of irrevocable trusts, such as domestic asset protection trusts, charitable remainder trusts, charitable lead trusts, and life insurance trusts, along with other wealth transfer tools such as family limited partnerships; counseling clients on probate avoidance techniques to streamline and reduce the costs associated with estate administration; assisting business owners with succession and wealth transfer planning; planning for children or other loved ones with special needs to include the use of wholly discretionary trusts, supplemental services trusts, and special needs trusts to protect the beneficiary’s eligibility for public assistance benefits; advising clients on Medicaid planning and other elder care issues; representing Executors, Administrators, and Trustees with the administration of estates and trusts, including assistance with tax planning and the preparation of Federal estate tax returns, and Federal and Ohio fiduciary income tax returns; and assisting with applications for, and the administration of, guardianships for both minors and incompetents.