Attorneys, Accountants, and Financial Planners Learning to Survive in our New Tax World

Over the past few years there have been many changes with regard to income taxes, capital gains taxes, surtaxes, estate taxes, and fiduciary responsibilities. Transfer tax exemptions and portability are now “permanent” for the first time since 2000. The definition of marriage has been expanded to include more couples than ever before. Clients are living longer today than ever before and there needs to be a focus on today’s planning with an eye towards clients living for an extended period of time, maybe longer than they ever thought possible. And this obviously begs the question, “how do I put a plan of action in place so I won’t outlive my money and how I protect assets for my heirs?”

Many clients fail to consider income tax planning when considering the overall estate plan. A decade ago, the rate differential between top transfer tax rate and top income tax/capital gain rate was significant. Today, the rates are much closer and, in some states, income taxation at the federal and state level, combined, may exceed the transfer tax rate. It therefore becomes critically important to minimize income taxes during life and reduce taxes on assets passing to loved ones after death.

In the past, the general planning philosophy was, when in doubt, transfer the assets out, to avoid estate tax. The attorney didn’t worry about lifetime transfers and the loss of a step-up in basis. Now, if your attorney is not informing you of the benefit of a step-up in basis, s/he is missing the mark. We need to seek to obtain a 1014 basis at death for clients with minimum estate tax liability and best utilization of GSTT exemption.

Advisors also need to consider creditor protection on both qualified and nonqualified assets, utilization of portability to take advantage of a deceased spouse’s unused exemption, domicile counseling, tax bracket management, remarriage protection, and bloodline trusts. Additionally, we need to advise clients as it relates to ordinary income versus long-term capital gains rates and the differences between personal and trust income.

If you need assistance, not only with estate planning but also income tax planning, creditor protection, and overall advice as it relates to your overarching legal and financial planning please call us at 856-857-6007 to schedule an appointment.