by: Julie Ickes, J.D., LL.M. ~ Jackson Law Group
How did tax reform affect estate planning? The tax reform enacted on December 22, 2017 increased the federal estate and gift tax exclusion from $5.49 million in 2017 to slightly over $11 million1. The estate tax is a tax on property transferred upon your death, but only estates valued in excess of an exclusion may owe tax. In general, assets of the deceased plus any gifts the deceased made during his or her life in excess of the annual gift tax exclusion2 on which no gift tax has been paid, are included in the calculation. Most individuals and couples do not have assets exceeding $11 million and $22 million, respectively, so an even smaller group of people will now be impacted by the estate tax.
Therefore, income tax planning is more relevant to most people now. There are strategies to minimize taxes to your beneficiaries. Property generally keeps the same taxable characteristics when it is transferred to another. For example, a traditional IRA will still cause your beneficiaries to report income when they take distributions, a sale of a home could cause capital gain tax, and sales of stock could cause capital gains or losses.
Due to tax rules, if appreciated property (property that increased in value as one has owned it) is given while the giver is alive, this can result in higher taxes for the recipient when it’s sold than if it had been gifted at death. On the other hand, it could be advantageous to gift depreciated property to beneficiaries during your life. However, it’s not quite that simple. A major complication can be long-term healthcare issues. Healthcare costs for assisted living or nursing homes is very expensive and you should consider how you could pay for healthcare costs or caregivers as you age. Gifting assets can have consequences for qualifying for financial assistance for healthcare costs. Another problem is that
even if you only add another owner, doing so may take away your ability to control the asset.
Since no two cases are exactly alike, it is recommended to consult with professionals, such as a tax attorney, accountant, financial planner and estate planning attorney when you create an estate plan and before you gift significant assets.
Julie Ickes is an associate at Jackson Law Group. Her primary practice areas are Estate Planning, Trust and Probate Administration and Guardianships. She received a Bachelor of Arts degree from Smith College. Julie earned her J.D. and LL.M. in Taxation from the University of Florida Levin College of Law.