Getting an estate plan in order is important for anyone in Arizona or elsewhere. No matter one’s age, getting your affairs in order is essential. The documents contained in an estate plan can help address where one’s property and assets go, provide protection for certain assets and dictate who has the authority to make financial and healthcare decisions. While an estate plan is essential for anyone, the estate planning process will look different for a young individual versus one creating an estate plan later in life.
It may not feel relevant now because they are just proposals; however, when there are legislative proposals that could impact estate and tax planning, it is imperative that one considers how they could potentially impact them now and in the future. As such, one may want to consider these possibilities when drafting an estate plan or updating it in the future.
Below, a few of these bill proposals will be briefly discussed, noting the effect they could have on estate on tax planning.
To begin, the 99.5% Act would cause major changes to the gift, estate and generation skipping transfer taxes. As a result, there would be higher gift and estate tax rates. Next is the STEP Act, which would treat gifts, whether they are in a trust or upon death, as being items being sold for fair market value. This, in turn, triggers the capital gains taxes for the beneficiaries receiving gains that exceed $1 million.
The Biden administration’s American Families Plan would increase the tax rate on capital gains and dividends. Finally, a House Ways and Means Committee proposal would increase the capital gains tax rate and include provisions regarding grantor trusts, which could impact the planning landscape.
Considerations for estate planning
The above proposals may cause individuals to consider three options. The first is an intentionally Defective Grantor Trust, which is an irrevocable trust which could help a grantor remove assets from their taxable estate. Next, a Spousal Lifetime Access Trust could be used. This is an irrevocable trust that provides benefits to a spouse during their lifetime and is not taxed when either the grantor or spouse dies. Finally, annual gifts could be used. The tax-free gift limit is $15,000 per individual and will not count against the lifetime gift tax exclusion.
An estate plan goes beyond bequeathing property and assets to heirs. There can be many implications to consider when it comes to taxes. Whether it is an estate tax or gift tax, it is important how it could impact one’s estate plan now and well into the future. Additionally, one should be aware of when to update a current plan and was to accomplish this.