This is a midterm election year. Among accomplishments claimed by the Republican Party controlling national government is the passage late last year of major tax reform. As we noted in a previous post, the package contains a great many benefits, not the least of which is the passing of what is commonly called the death tax; the levy governments use to tax benefits transferred to a decedent's heirs and beneficiaries.
As welcome as the action is, it's important to remember it only applies to federal taxes. And as we observed, it is temporary. It rises from the dead in just a few years unless Congress takes more action. Not surprisingly, amid midterm campaigning Republicans in the House say they are working to make some changes permanent.
In the face of that pledge, some readers may wonder if estate planning remains relevant. The answer, of course, is yes. Campaign pledges do not policy make. Additionally, federal taxes are not the only reason estate planning is important. Possible taxes at lower levels of government deserve consideration. Proper planning can also:
- Serve as a factor to control costs after a loved one's death
- Curb potential disputes among family members over inheritance
- Make certain that estate assets are used for the purposes the decedent intended
Tax structures vary greatly from state to state. Some have estate taxes. Some still have inheritance taxes, as well. The difference between the two is that the estate typically pays the estate taxes before distributions. Beneficiaries of assets may be obliged to pay inheritance taxes, with closer relatives of the decedent paying less than those more distant.
Different strategies can mitigate tax implications that might exist, but that requires knowing what the law of a given state requires and what tactics can be used in response. Protecting assets from probate is another potential benefit of planning.
All this points back to the fact that life is uncertain, but many facets can be anticipated and planned for with a skilled attorney's help.