Even though the estate tax has been defanged, much like the old Abominable Snowman of "Rudolph the Red-Nosed Reindeer" fame, there is still much "planning" to be done.
Again, I repeat the estate tax is now (in 2015) an inflation-adjusted $5.43 million! Who would have thought that possible? That pretty much killed the estate tax for most Americans kind of like video killed the radio star.
What about other tax planning? What about asset protection planning?
The Investor's Business Daily says such planning is ignored at your own peril in an article titled“Estate Planning For 2015: How To Protect Assets From Taxes.”
What about state death taxes? As the original article notes, there is no one-size-fits-all pattern to state death taxes.
While Kansas and Missouri currently have no state estate tax, some 15 states and DC impose state estate taxes, with six states levying an inheritance tax. Maryland and New Jersey have both.
Okay, come back off of the ledge. In 13 of these states and in DC, the state estate tax exemption is lower than the federal $5.43 million. Consequently, an estate could owe state but not federal estate taxes.
The up side is that many of the 15 states are increasing their estate tax exemptions, and Tennessee will eliminate its remaining state death tax next year. Note to file: Among those Americans who still pay taxes, taxes are not very popular.
So, what can you do?
Beyond packing up and moving to another state, there are some strategies that can help you reduce or eliminate state death taxes. For example, the original article suggests focusing on lowering capital gains and income taxes on an estate.
On the other hand, in some cases strategies can get rather complex. In those cases various types of trusts may be used. In addition, asset owners need to consider numerous issues, such as the "stepped-up basis" rule for inherited property, as well as assessing which assets to buy, sell, or hold, how to hold them, and when to give them away.
On the asset protection side of the equation, there is a trend (albeit in a minority of states) toward self-settled asset protection trusts. If there are no current creditor claims, the original article says these trusts can protect assets from future creditors better than other trusts can.
All that noted, take no action when it comes to tax planning and asset protection planning without consulting an experienced estate planning attorney. After all, who is more likely to have an error and omissions policy if things do not work out ... a real estate planning attorney or one of those online legal outfits?
Think about that.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Investor's Business Daily (January 2, 2015) “Estate Planning For 2015: How To Protect Assets From Taxes”