Wills, Trusts & Estates
Law Office of Steven M Berger, LLC


News & Updates

How will the proposed tax changes affect estate planning?

Proposed Income Tax Rates Our office recently held two workshops on how the proposed changes in the tax law will affect estate planning. One of the workshops was attended by potential clients and one of the workshops was a round table discussion with our trusted advisors. We discussed the impact of three possible changes:

  1. Income Tax rates will be reduced.
  2. The Affordable Care Act will be repealed.
  3. The Federal Estate tax will be repealed.

From the client viewpoint none of these changes really change the need to do estate planning. Families still need a plan to pass assets in an orderly fashion to protect the surviving spouse and children. Disability needs to be addressed as longer lives do not always mean healthier lives. The current federal exemption of $5,450,000 covers almost all of our clients and the Maryland Estate tax ememption is scheduled to rise to $3,000,000 in 2017. Client concerns are:

  1. Spending a substantial amount of their assets on long term care.
  2. The surviving spouse remarrying and the new spouse inheriting the family nest egg that is slated to go to the children.
  3. The child's inheritance lost in a divorce or by "lottery winning mentality".

The advisors were quick to point out the benefits of the lower tax rates on asset accumulation and the opportunity for trust planning. The economics of Roth conversions or IRA withdrawals will change depending on tax rates. The discussion moved to the difference between beneficiaries on their perception of inherited IRA accounts. Our firm offers trusts designed for retirement trust to eliminate impulsive withdrawals and maintain asset protection of retirement accounts.

Along with the benefits of lower tax rates comes the reality that lower government revenues puts more pressure to reduce entitlement programs. The need for long term care insurance has never been more compelling, but there are not enough policies sold to reduce the number of new applications for Medicaid at nursing homes. For those without long term insurance or $1,000,000 in liquid assets to pay for nursing care, our firm can offer a planning solution.

  1. An irrevocable trust to hold part of your family nest egg. This trust is for the benefit of our children and will not be counted against your eligibility for Medicaid after 5 years pass from funding the trust.
  2. Start keeping detailed records of your spending now and understand what spending can be counted as "gifts" and delay Medicaid eligibility.
  3. Use Personal Care agreements to pay for home health care services and avoid making cash payments "under the table".

Whether or not all these changes will take place remains to be seen. Any reductions in tax rates could be opposed by balanced budget supporters. Reduction in entitlement programs will be met by constituent phone calls and emails opposing the cuts. The "Byrd Rule" could affect the permance of any tax changes. In 2013 Congress passed a permanent estate tax law. My advice was the law is permanent until Congress decides to change the law. Our firm has been able to draft our trusts to adapt to the many estate tax law changes since the repeal in 2010. Our takeaway from the workshops is that the firm will offer a one year guarantee on any new will or trust if changes need to be made to account for changes in the tax law.