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Estate planning decisions must respond to tax law changes

Taw laws are constantly changing. It's a classic example of the old adage that "the only constant is change."

In the field of estate planning, the estate tax has been an excellent example of this in recent years. Those changes have greatly affected the estate planning decisions of many people in Massachusetts and across the nation. They did this by greatly increasing the individual exemption available before federal estate tax kicks in.

But it isn't only changes in estate tax rules that have people's attention. It is also changes in federal income taxes.  

And these changes, in turn, play a role in how trusts are best used for estate planning purposes. In practice, this means there are some specific types of trusts that are no longer generally as desirable as they once were. 

For example, as we discussed in our July 15 post, the usefulness of trusts for a transferring ownership in a personal residence has changed significantly over time. Though such trusts may still play a useful role in protecting assets from creditors, they may not be needed as such as in the past in order to minimize estate tax consequences.

It is also worth considering how intrafamily loans can work to accomplish family asset transfers. For example, such loans could be used by wealthy parents who wish to put money in the hands of children who are not as wealthy -- and therefore in lower tax brackets.

When the children invest money from these loans, how is the income from those investments to be taxed? Under IRS rules, such income is taxed at lower income tax rates than it would have been before the loans were made.

Source: The Wall Street Journal, "Estate Planners Turn Focus to Income Tax," Arden Dale, September 6, 2013

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