Planning for the Future


Everyone Still Needs Estate Planning

Will the estate tax go away completely?  That’s part of the discussion on tax reform currently on the table in Congress, but whether the repeal of estate taxes makes it to any final bill remains to be seen.  If estate taxes are eliminated, does that mean that estate planning is no longer needed?  Hardly.

For 2017, estate taxes apply only to estates in excess of $5.49 million (scheduled to increase to $5.6 million in 2018).  In 2016, only 12,411 federal estate tax returns were filed.  Of these, only 5,219 were taxable, after taking marital and charitable deductions.

But estate planning involves much more than estate taxes.  Everyone needs to plan for a thoughtful distribution of their assets at death, reduction of estate expenses such as probate, possible state estate and inheritance taxes and income taxes on retirement accounts.  Many people also feel it is important to leave a legacy for future generations through gifts to charity.

Everyone should review their wills, trusts and other estate planning arrangements regularly.  In the process, we hope you will consider making or augmenting a thoughtful charitable bequest.  Special opportunities exist for tax-wise legacies from IRAs and other retirement plans, life insurance and financial accounts.  Keep in mind that you can make a bequest or gift that also provides lifetime payments to a spouse or other person.

Too Young for Estate Planning?

“Estate planning?  I’m too young for that.  Anyway, at this point in my life, my ‘estate’ isn’t big enough to worry about.”

At what age should people start thinking about writing a will or making other estate plans?  In most states, the only legal requirement for will-making is that a person be age 18 or older and “of sound mind.”  But as a practical matter, the need for a will starts to arise when a person assumes family responsibilities or accumulates personal wealth sufficient to warrant planning for its distribution.  Here are six good reasons for younger people to make wills:

  1. Parents with minor children need wills to nominate the persons they would want to serve as guardians, should the children become orphans.  Otherwise, a court might appoint a guardian who does not share the parents’ personal or religious values.

  2. Parents should consider establishing trusts in their wills to provide financial management and protection for minor children in the event both the mother and father were to pass away (or the parents are divorced).

  3. Husbands and wives with living parents might prefer that their estates pass 100% to the surviving spouse, but without a will, a portion of a person’s estate could pass to his or her surviving parents under state laws for those who die without a will (intestates).

  4. A will is the simplest way for you to direct who will receive your property when you die.  Without a will, the state may distribute some of your property for you, according to its own inflexible laws.  There may be special personal items or mementos that you might wish to bequeath to friends or particular family members, or important charitable organizations you wish to benefit.

  5. Your will enables you to name an executor (personal representative) of your own choice to carry out the directions in your will and help your family with any special problems (business or personal) that may arise after your death.

  6. You may want to “give back” to future generations through a charitable gift in your will.

Extraordinary Ideas for Estate Gifts

Including a gift to charity in your will or living trust can be as easy as naming us to receive a specific asset, amount of money or percentage of the estate.  But there are more involved arrangements, as well.  Here are just a few possibilities:

Make lifetime payments to your heirs — A charitable trust can be established under your will to provide lifetime income for family members, with the remainder passing to us when the trust ends.  Your estate would be entitled to a charitable deduction for the value of our right to receive the property in the future.  You can also leave funds or securities directly to us and we will agree to provide a charitable gift annuity to a relative or friend for life.

Reduce estate taxes with a lead trust — You might consider a gift technique that allows you to give charity merely the income from investment assets for a number of years, with all assets later passing to your family.  This technique — the charitable lead trust — lets you control the eventual distribution of all your property and share a meaningful gift between your family and charity.  Lead trusts are generally used to reduce federal transfer taxes (gift, estate or generation-skipping taxes).

Consider beneficiary designations — Don’t forget that life insurance policies, IRAs and most financial and brokerage accounts can be made payable to charity at death, without any need to change your will.  Remember, too, that revocable living trusts can name charity to receive benefits during life and at death.

IRS Announces Cost-of-Living Adjustments for 2018

The IRS recently issued the inflation-adjusted numbers for 2018, although a few of these may change, depending on tax law changes working their way through Congress.  Some of the numbers that should not be affected by any tax bill:

  • The contribution limit for IRAs remains at $5,500, but the limit for 401(k) plans increases by $500 to $18,500.

  • The “kiddie tax” remains at $2,100.  The unearned income (interest, dividends, capital gains) in excess of $2,100 of children under age 18 or students up to age 23 whose earned income is less than half their support is taxed at the parents’ highest rate.

  • The “nanny tax” remains at $2,100.  If wages in excess of $2,100 are paid to babysitters, housekeepers or gardeners, the taxpayer is liable for Social Security and unemployment taxes, as well as withholding for state and federal taxes.

  • The annual gift tax exclusion, stuck at $14,000 since 2013, will be $15,000.