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How Donald Trump's Tax Reform Act Affects Your Legacy Plan

By newadmin / Published on Wednesday, 07 Feb 2018 00:40 AM / No Comments / 5 views


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US President Donald Trump delivers remarks on tax reform at Sheffer Corporation in Blue Ash, Ohio on February 5, 2018. / AFP PHOTO / MANDEL NGAN (Photo credit should read MANDEL NGAN/AFP/Getty Images)

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made sweeping changes to how individuals and business are taxed. While the Tax Act will have an obvious impact on how individuals and business are taxed on their income, the question is: How will the Tax Act affect my legacy plan?

Leading with a discussion of taxes in the context of legacy planning is putting the proverbial cart before the horse. Legacy planning is not about taxes. Legacy planning is about creating a plan and legal structure that (i) empowers you to achieve your greatest success during your lifetime, and (ii) preserves your life’s work and the foundation for your success long after after your death in a way that provides future generations with the opportunity to define and achieve their own greatest success. The trick is that your life’s work and the foundation for your own success must invariably live through assets that can be preserved after your death—e.g., writings, a company, etc. This is where legacy planning and more traditional estate planning intersect, because your assets (i.e., everything you own) make up your estate. With estates come the possibility of estate taxes. So, while you should never lead a discussion about legacy planning with taxes, there are certainly potential tax implications to implementing a legacy plan and you should always try to manage your affairs in the most tax-efficient manner.

One major change under the Tax Act is that the estate and gift tax exemption has been doubled to an estimated $11.2 million per individual, or $22.4 million for married couples. That means that you and your spouse can either give away during your lifetime, or die owning, assets worth a combined $22.4 million and owe zero federal estate or gift tax. The problem is that this increase only applies for the next 8 years and expires at the end of 2025. Therefore, if you expect to live beyond the year 2025, the increase in the federal estate tax exemption will provide you with no benefit. In addition, there is the added complication of state estate taxes—many states like New York and Connecticut, for example, have significantly lower estate tax exemptions, so if you and your spouse both die with a combined estate of $22 million, your could still owe a significant amount of state estate tax. This could force your estate to sell assets to pay for the tax owed, potentially disrupting your legacy plan.

With the exception of Connecticut, no state currently has a gift tax. Therefore, the $22.4 million in assets that you and your spouse can transfer gift tax-free between now and December 31, 2025 will also not be subject to state gift tax (unless, of course, you are a Connecticut resident). More importantly, you can gift those assets to an estate tax-proof trust so that there will be no federal or state estate taxed owed on your death. This spells opportunity.

Creating a legacy plan and structure almost always involved transferring assets to a trust or other entity. Whenever you transfer assets there are always potential tax consequences to consider. With the newly increased gift tax exemption, you can now transfer an historical high value of assets without incurring any tax, and further shelter those assets from estate tax in the future. Trump’s Tax Act does one thing for legacy planning—it dramatically decreases (if not all out eliminates) the tax complications and hurdles typically associated with legacy planning. It makes it easier for you set up a legacy plan and structure. While death may still be an inevitable part of the equation, taxes no longer have to be. The time to establish your legacy plan is now.

DISCLAIMER:&nbsp;The&nbsp;information contained in this article is for informational purposes only and is not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.

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US President Donald Trump delivers remarks on tax reform at Sheffer Corporation in Blue Ash, Ohio on February 5, 2018. / AFP PHOTO / MANDEL NGAN (Photo credit should read MANDEL NGAN/AFP/Getty Images)

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made sweeping changes to how individuals and business are taxed. While the Tax Act will have an obvious impact on how individuals and business are taxed on their income, the question is: How will the Tax Act affect my legacy plan?

Leading with a discussion of taxes in the context of legacy planning is putting the proverbial cart before the horse. Legacy planning is not about taxes. Legacy planning is about creating a plan and legal structure that (i) empowers you to achieve your greatest success during your lifetime, and (ii) preserves your life’s work and the foundation for your success long after after your death in a way that provides future generations with the opportunity to define and achieve their own greatest success. The trick is that your life’s work and the foundation for your own success must invariably live through assets that can be preserved after your death—e.g., writings, a company, etc. This is where legacy planning and more traditional estate planning intersect, because your assets (i.e., everything you own) make up your estate. With estates come the possibility of estate taxes. So, while you should never lead a discussion about legacy planning with taxes, there are certainly potential tax implications to implementing a legacy plan and you should always try to manage your affairs in the most tax-efficient manner.

One major change under the Tax Act is that the estate and gift tax exemption has been doubled to an estimated $11.2 million per individual, or $22.4 million for married couples. That means that you and your spouse can either give away during your lifetime, or die owning, assets worth a combined $22.4 million and owe zero federal estate or gift tax. The problem is that this increase only applies for the next 8 years and expires at the end of 2025. Therefore, if you expect to live beyond the year 2025, the increase in the federal estate tax exemption will provide you with no benefit. In addition, there is the added complication of state estate taxes—many states like New York and Connecticut, for example, have significantly lower estate tax exemptions, so if you and your spouse both die with a combined estate of $22 million, your could still owe a significant amount of state estate tax. This could force your estate to sell assets to pay for the tax owed, potentially disrupting your legacy plan.

With the exception of Connecticut, no state currently has a gift tax. Therefore, the $22.4 million in assets that you and your spouse can transfer gift tax-free between now and December 31, 2025 will also not be subject to state gift tax (unless, of course, you are a Connecticut resident). More importantly, you can gift those assets to an estate tax-proof trust so that there will be no federal or state estate taxed owed on your death. This spells opportunity.

Creating a legacy plan and structure almost always involved transferring assets to a trust or other entity. Whenever you transfer assets there are always potential tax consequences to consider. With the newly increased gift tax exemption, you can now transfer an historical high value of assets without incurring any tax, and further shelter those assets from estate tax in the future. Trump’s Tax Act does one thing for legacy planning—it dramatically decreases (if not all out eliminates) the tax complications and hurdles typically associated with legacy planning. It makes it easier for you set up a legacy plan and structure. While death may still be an inevitable part of the equation, taxes no longer have to be. The time to establish your legacy plan is now.

DISCLAIMER: The information contained in this article is for informational purposes only and is not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.

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