The Republican President, the Republican-controlled House of Representatives and the Republican-controlled Senate all seem to have tax reform on their agendas for early in 2017. So it appears likely that the estate tax will be the subject of changes, whether that be immediate repeal or phased-in repeal (as enacted in 2001). It also appears likely that repeal of the estate tax will bring with it repeal of the Internal Revenue Code provision permitting a step-up in tax basis to fair market value at death, (although there may be a minimum threshold where a step-up will be allowed). These revisions will be game-changing.
Because of all this uncertainly, clients must do “healthy” estate tax planning. A healthy estate tax plan should focus on all of the estate planning needs of an individual while considering also the tax implications of such plan. (It should also be noted that New York, New Jersey and Connecticut have not adopted the concept of a “portable” estate tax exclusion. It is important, therefore, to consider the order of death).
The Federal exclusion will increase to $5,490,000 on January 1, 2017. The New York State exclusion will increase to $5,250,000 on April 1, 2017. Consequently a small percentage of New York clients are in need of estate tax reduction. The Connecticut exclusion is $2,000,000. New Jersey has actually repealed its estate tax effective January 1, 2018.
For couples with taxable estates exceeding $11 million dollars, we do have many techniques available to reduce those estate taxes.
Clients at all asset levels must understand that there is so much more at stake besides estate tax.
In light of the present Federal capital gains tax effective rate of 23.8% augmented by NYS tax, and perhaps NYC tax, clients must also look at the resulting tax basis in their assets. We should note that with potential tax reform there could be reductions in the capital gains tax rates and elimination of the 3.8% tax on net investment income.
Savings in estate tax must be weighed against possible increases in income tax. For many years, this firm (and its predecessor firms) has used its income tax planning experience (personal and business) to be sure that the estate plan proposed would not be counter- productive in other ways.
Also, taxes aside, our firm has the knowledge and experience to solve other potential problems before they occur. We are experienced in the issues that arise in second marriages, and we create prenuptial agreements for clients and children of clients. We face up to the challenges of Medicaid planning, special needs planning and the financing of long term care.
Our firm reviews how title to property is held, concentrating on real property, both in-state and out-of-state, to avoid ancillary probate and to streamline the process of estate administration.
We are also cognizant of the requirements to which clients must adhere to avoid potential Will contests. And while we represent our clients zealously and diligently, we are sensitive to the anxiety caused by delays in estate administration and the potential headaches of fighting with parents and siblings. So, we always look to the advantages of settlement and mediation.
So don’t assume that you don’t need to plan, and if you have a plan, be sure to keep it updated. Even if the estate tax is repealed, it could be reinstated in the future, or it could be replaced with taxes just as deadly.