New Tax Rules Modify Effective Estate Planning

June 14, 2013 Posted In Estate Planning,Firm News

The changes to the United States tax laws in 2012 have ramifications on estate plans. Colorado residents should consider the consequences that the tax laws will have on their individual estate planning.

The goal of estate planning is to preserve assets, and the tax implications of the new laws create estate planning concerns. The 2012 changes raised the highest income tax rate to 39.6 percent, and the taxes on some capital gains and dividends increased to 20 percent. Investment income is now subject to a 3.8 percent Medicare tax.

The higher estate tax exemption, coupled with higher income tax rates, may make life insurance policies a good option. Individuals can take loans from certain life insurance policies while they are alive. As long as either increased premiums or policy investments cover the cost of the loan, heirs will still receive the benefit of the life insurance policy.

As a result of the 2012 tax increases, trusts may not always be the best estate planning vehicle. Trusts have several advantages, including protection from creditors. However, the income created by trusts is subject to increased taxation when the undistributed income of a trust is $11,950 or higher, including the new 3.8 percent Medicare tax. A trustee may be able to modify the trust investments to keep taxes to a minimum.

The new tax laws can also affect both charitable and private gifts. Individuals may want to consider gifting during their lifetime, rather than in their estate. Charitable remainder trusts may still be a good investment for certain people.

Drafting estate planning documents must be done with care, and the new tax laws should be considered when writing wills and other documents. An attorney with experience in trusts and estates may be able to help an individual create an estate plan that minimizes taxes and maximizes the available estate assets.

Source: Investing Daily, “How estate planning is changing“, Bob Carlson, June 07, 2013

Contact Phillips & Blow, PC to learn about the New Tax Rules, and see if it effective with your Estate Plan.

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