Some might think that estate taxes are the only tax issue where estate planning and taxes really intersect. However, there are other types of tax issues estate planning can be directed towards. This includes income tax issues, like issues regarding the capital gains tax and stepped-up basis. These issues can impact how much in the way of income tax liability a given gift could expose a person’s beneficiaries to.
In fact, in recent times, income tax concerns have been getting an increased amount of focus within estate planning generally. More and more estate planning strategies are having such concerns as their central focus points.
This increased prominence of income tax considerations in estate planning could be due to shifts in estate and income taxes at the federal level. In recent times, the federal estate tax rate has been trending down, while the exemption amount has been trending up. This exemption level is currently at nearly five and a half million dollars. Meanwhile, max federal income tax rates have been trending up.
Of course, this does not mean that estate taxes are no longer a relevant issue in estate planning. There are still estates out there that exceed the federal exemption amount. Also, in some states, individuals with estates worth far less than the federal exemption could face potential estate tax issues. This is because some states have their own estate tax, and set the exemption level for the tax lower than the federal level. Massachusetts is one of these states.
So, what kinds of tax issues it could be important for a person to address in their estate plan could be affected by many things, including trends in federal tax policy, the size of their estate, their specific circumstances and the state they live in. Experienced Massachusetts estate planning lawyers can assist individuals in the state with identifying what particular tax issues could come up in connection to their estate and understanding what estate planning mechanisms are out there for addressing such issues.
Source: Bloomberg BNA, “Income Tax Strategies Steal Spotlight in Estate Planning,” Allyson Versprille, Oct. 11, 2016