Estate planners should now focus less on transfer taxes and more on income taxes when building a plan that provides for a client’s loved ones.
This is a change. For a long time, estate planners were focused primarily on the transfer taxes (i.e., estate, gift, and generation skipping), while minimizing income tax planning for their clients. For example, many an estate planner has pontificated ad nauseum about the power of lifetime gifting. If the client utilizes the annual gift exemption, gifting removes the value of the gift from the donor’s estate, and if the client utilizes the lifetime gift exemption, gifting removes appreciation from transferred property. But, an income tax tradeoff has always existed. If the client makes a gift during life, the donee receives the property with the donor’s income tax basis; if the client makes that same transfer at death, the donee will receive the property with a basis equal to date of death value. This is called “stepped-up” basis and presumes property will appreciate in value. For those beneficiaries unlucky enough to receive bequests in 2008 and 2009, they might use the term “stepped-down” basis to reflect their reality.
So, why did these planning strategists place transfer tax avoidance as a higher priority than income tax planning? A few simple reasons are obvious:
So what has changed?
At the end of the day, clients will want to seek out advisers who can navigate the world of both income and estate taxes, and can help them build a plan to take care of the people they care about while minimizing the impact of all taxes. No more cookie cutter plans; no more cookie cutter planners.
If you have any questions, please contact Attorney Joseph M. Maier at O’Neil, Cannon, Hollman, DeJong & Laing S.C. at 414-276-5000.
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