The Tax Game Has Changed | Massachusetts Estate Planning Attorney
The Old Ways Don’t Work Anymore
For years, estate planners have done what is considered traditional estate planning. They drafted plans primarily concerned with minimizing future estate tax liability and gave minimal attention to income tax consequences.
This was perfectly fine years ago when the estate tax was much more severe than the potential for income tax. This was attributable to relatively high estate tax rates, low estate tax exemption that was not indexed for inflation, and comparatively low capital gains rates.
However, Congress has tinkered with the tax system in a huge way. Accordingly, the income tax impact of estate planning is taking on greater significance, especially for Massachusetts residents.
The Tax Man Cometh
More attention shall now be directed toward the importance of income tax basis considerations in estate planning due to the narrowing between the estate tax rates and the income tax rates. In fact, in most estates worth less than $5.34 million, estate taxes are no longer an issue. Now, income taxes loom large, primarily because of the lack of attention on the income tax basis (i.e. cost or adjusted basis) of capital assets. Also state estate taxes have become critically important because of the lower $1 million threshold for estate taxes in states like Massachusetts.
Failing to Update Could Cost You
The bad news for most middle-class taxpayers is that for years they've been fed a steady diet of estate tax minimizing wills and trusts. Worse yet, they hang onto outdated documents for many years, thinking they are done with their estate planning and not wanting to be bothered. Sadly, these old documents will no longer serve their intended purpose of estate tax minimization. A major problem is also created when federal estate tax minimization plans, unless they are updated, will cause a completely avoidable Massachusetts estate tax for a married couple. While there may be no federal estate tax savings with these documents, because very few middle-class taxpayers will ever pay estate tax, the documents will increase income taxes for their heirs upon sale of appreciated assets. Moreover in Massachusetts, there may not only be a completely avoidable estate tax on an additional 1 million dollars, but it may also trigger a large, completely avoidable Massachusetts estate tax on the first death.
What to Do About a Completely Avoidable Massachusetts Estate Tax
Bottom line: the game starts anew. Let's focus on income tax minimization for most taxpayers and forget about estate tax minimization. Unless your estate is worth more than $5.34 million, your biggest risk is Massachusetts estate tax as well as overpaying income taxes due to inattention to income tax basis planning in your wills and trusts. Don't make that mistake. Review your documents today so that you eliminate these lurking tax problems
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We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.