Surprising Developments in Estate Planning

Estate planning has come a long way over the past 20 years. The concerns over federal estate taxes are largely a thing of the past, and many married couples no longer have to use complex trusts to minimize their taxes. Despite obvious areas of improvement, estate planning continues to evolve along with cultural and financial changes. In this blog, we’ll introduce you to estate planning today and break down its implications.

Comparing 1995 and 2015

Back in 1995, the exemption for federal estate taxes was $600,000, and the estate-tax rate was 55%. 20 years ago, accumulating a taxable estate was as easy as owning a home, maintaining a few investments, and having life insurance. Married couples were able to pass on $1.2 million in exemption fees from estate taxes by creating a Marital or Family Trust in their estate plan. Though the process for exemption fees was somewhat complicated, it was well worth avoiding the 55% tax for most families and couples.

Importance of Income Tax Strategies

As of this year, the federal estate-tax rate has fallen by 40% when compared with 1995, and the federal estate exemption is now an astounding $5.43 million. Because married couples may now pass on two times the previous amount— $10.86 million— without a Marital or Family Trust, the keys to estate planning have expanded beyond simple tax planning.

The top federal income-tax rate rose from 35% in 1995 to 43.4% today. Further, the top long-term capital gains rate has risen by over 8% in the same period. These changes have made income tax strategies more important than ever before.

The New ‘Normal’

Unfortunately, more American families are blended or estranged than ever before. A lot of this has to do with skyrocketing divorce rates. With so many unique family situations to contend with, flexible estate planning has become the new “normal.” Estate-tax exemptions are becoming more and more forgiving, making Marital and Family Trusts less important. The result has been that families with less than $10 million are trying to create estate inclusion so their heirs are set up to receive assets. This could be accomplished in several ways:

  • Passing assets directly to a spouse and making a portability election
  • Including flexibility for future changes in Marital Trusts
  • Creating a Revocable Family Trust that allows for basis increases

If an estate plan becomes irrevocable before you’ve had the opportunity to add flexibility, it may be altered by restating intent with judicial interpretation, changing the trust directly, invoking a trust protector, or decanting the trust.

Innovative Estate Planning with Cohen & Burnett

Cohen & Burnett provides asset protection, estate planning, tax preparation, and much more to a diverse community of individuals and families. If you’re interested in estate planning designed for today’s realities, please contact us today or visit our homepage for more information.



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