A big component of the tax reform plan released by the White House and Republicans involves eliminating the federal estate tax, which the plan calls “the death tax.” An advantage of eliminating the estate tax is that it allows a small slice of the population to simplify their estate planning. For the rest of us, estate planning is still necessary. Here are several reasons why you'll still need estate planning, even if tax reform successfully ends the federal estate tax.
Direct your assets where they're most needed. The most obvious reason: to direct the disposal of assets after your death. You’ll want to protect minor children with trusts to guarantee wise financial management of their assets after your death. If you’ve been married multiple times with children from different marriages, you also need to really get a grip on estate planning to avoid any problems before they arise.
A few states still have estate taxes. Tax reform will address federal law, but the federal government doesn't have power over how states tax their residents. The majority of states don't have an estate tax, but 14 states, plus DC do. Six states also have inheritance taxes that apply to the recipients of gifts. Of the states that have their own estate taxes, the exemption amounts are often much lower than the federal exemption of $5.49 million. Therefore, more people should plan their estates with state estate taxes in mind.
The need for federal tax planning won't disappear. Right now, the trade-off that taxpayers receive is this: in exchange for potentially being subject to estate tax, you have a step-up in the tax basis of inherited assets, which eliminates capital gains tax on any appreciation the prior owner earned before death. If the new legislation for eliminating the estate tax also has a cut to the step-up in basis, it would require heirs to take capital gains tax liability into account. This would create a much more difficult burden on heirs to account for the tax basis of the deceased person from whom they received the assets.
Don't cut corners on your estate plan. Even if the estate tax goes away, you still need to do basic estate planning, from writing a will to creating a trust to make certain your assets go where you want, when you want and how you want. You'll need a Power of Attorney, Health Care Proxy and other documents in place as well. Without estate planning, you can cause financial and emotional strife to those you leave behind. We can help you with that, just call us today at 757.259.0707 to schedule your complimentary consultation or request a consultation online.
Reference: The Motley Fool (October 21, 2017) “3 Reasons You'll Still Need Estate Planning Even if the Death Tax Disappears”