Sometimes federal and state governments pass laws that have a tremendous impact on estate planning. For this reason, it’s important for New Jersey residents to pay close attention to these changes and react appropriately. Otherwise, they could be facing an enormous tax liability at the end of their life, which could be disastrous to their children’s financial lives.
Before this year, wealthy individuals and couples often turned to trusts as a way to avoid costly estate taxes. However, now that the federal government exempts people with less than $5.25 million in assets, or $10.5 million for couples, from estate taxes, people are changing their strategies.
Instead, they’re focusing on income taxes, which have increased in 2013. The top federal income bracket is now 43 percent. People with less than $5.25 million but enough to fall into a higher tax bracket are choosing to limit their income tax liability instead of focusing on trusts. For instance, some people set up loans to their children, who typically fall into a lower income tax bracket.
Despite these trends in estate planning, it’s important to keep in mind that states may still tax estates that have less than $5.25 million in assets. Also, the president has indicated that he may take action to tax estates with $3.5 million in assets, so people who have more than this amount may want to continue using trusts for wealth protection. In general, it is best for people who are concerned about the safety of their estate may want to talk with an estate planning attorney.
Source: Wall Street Journal, “Estate Plans Shift Focus To Income Taxes,” Arden Dale, Sep. 6, 2013