Estate Planning in Politically Unstable Times

Fri, Sep 14, 2018 - 2:01pm

We’re in the midst of a favorable environment when it comes to taxes and estate planning, but just because it’s good now doesn’t mean it will be good forever.

Jim Puplava recently interviewed estate planning expert Elizabeth Morgan who explains how taxes can be affected by the political climate and changing political administrations. She discusses the effect of sunsetting exemptions, the annual exclusion, having an exit strategy, which states are better for sheltering assets, using asset protection trusts, and much more.

Elizabeth asserts that the best gift you can give your family is a good estate plan.

For the full interview, see What Congress Giveth They Can Taketh Away or continue reading below...

Planning to Protect Your Assets

In the past, taxpayers have used limited partnerships and limited liability companies (LLCs) to reduce exposure when it comes time to settle estate distributions.

But now, in 2018, the estate tax exemption is ,180,000, which means most individuals have less to worry about when it comes to setting up more complicated structures to limit tax burdens on estates.

However, it all depends on the value of your estate, Morgan noted, and limited partnerships are still being used significantly, especially for those who are in that very top tier of estate value.

It’s also important to note that currently, the ,180,000 exemption sunsets in 2025.

“I think that really now the use of these entities is most important from an asset protection standpoint, rather than an estate planning standpoint,” Morgan said. “That being said, if you look back at our history with our concept of a lifetime exclusion, it’s always possible that that exclusion amount could drop. I always tell my clients that while it may not be necessary now, using these vehicles for asset protection reasons remains incredibly valid. It may be that at some point in the future, the estate planning becomes important again.”

Revocable Trusts May Not Protect Your Assets

Currently, if you’re a high-net-worth individual, and you’re concerned about your estate’s value exceeding the ,180,000 exemption, you’ve probably considered a revocable trust to help protect your estate.

What you have to keep in mind, Morgan noted, is that currently, our estate transfer tax system is a unified system. What this means is that, upon your passing, all of the assets that you own currently and the assets we've given away during your lifetime come back into your estate.

The way that the estate tax return is structured means you’ll actually take all of the prior transfers and the assets at death, Morgan stated, and apply a tax rate to come up with a tax, and then apply in essence a credit.

In this case, tax is calculated based on credit, meaning that if this were to change prior to your passing, it's possible that the amount you have transferred into the irrevocable trust would nonetheless be subject to estate tax.

There’s a constitutional question as to whether this is legal, but that has yet to be fully adjudicated in the courts, Morgan noted.

“I don't know the constitutional answer, but certainly from watching what has happened in the past, I believe that there's a lot of sentiment currently at least to not allow a retroactive tax,” Morgan said. “Go ahead and do planning now … as there would be some kind of additional credit given for transfers that have occurred prior to a change in the law. … That's a good way to hedge against this possibility in the future.”

Avoid Pain Through Preparation

The tax laws are very likely going to change, Morgan noted. She’s seen a trend among individual states to firm up their statutes, and tax planning absolutely has to take into consideration where beneficiaries reside.

Also, globally, there's a movement toward raising taxes even on the transfer tax side in countries where there's been no transfer taxation, Morgan stated, along with a huge movement towards consolidating power and transparency, and taxing at higher rates.

Planning ahead, and planning for changes to come, is the way to go. In the old days, Morgan stated, we could get a court to reform a trust in a reasonable timeframe, but given how courts are backed up, sometimes that can be really difficult.

We need to draft in flexibility to all documents, Morgan stated, and we need the plan to be nimble because we honestly don't know what will happen.

Morgan also recommends having quarterly conference calls with both your estate planner and your tax attorney, as well as bi-annual face-to-face meetings. Be sure you like these individuals, because you’ll need to spend some time with them to ensure you’re adequately protecting your family when it comes to your estate.

“Anyone who says they can predict the future is just sadly mistaken,” Morgan said. “The only thing we know is that it's going to remain uncertain. … The old days of putting a trust in place that you thought would stay that way for the next 60 years are just gone. Whatever planning we put in place, we need to have an exit strategy and we need to be able to adjust.”

To contact Elizabeth Morgan about tax and estate planning issues, go to

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