The recent passage of Obamacare and the 2012 tax law changes have drastically altered the estate plans for thousands of taxpayers. Many Texas residents now find it necessary to revisit their estate plans with a qualified tax law attorney to ensure the best possible outcome. While the new changes put more emphasis on income taxes compared to estate taxes, it is important not overlook any aspect of one’s plan.
Estate plans have long utilized life insurance as a means of paying for estate taxes upon one’s death. Thus, the decreased importance of estate taxes makes life insurance slightly less important for many Texas taxpayers, but it can still provide a number of useful effects. As income tax rates climb, in fact, life insurance has become increasingly useful as an investment tool. More policy-holders can effectively access the cash value of their life insurance policies, as their benefits are less likely to be negatively affected by estate taxes due to a higher estate tax exemption. In other words, a higher proportion of Texas residents can directly own their life insurance policies, borrowing from those policies’ cash values without putting their heirs’ benefits at risk.
Many taxpayers’ giving strategies will likely be affected by the tax changes as well. For instance, charitable gifts carry fewer tax benefits for a sizable number of people due to the increased estate tax exemption and the phase out of itemized expenses, though making gifts during one’s life has become considerably more valuable. Likewise, a higher exemption makes lifetime gifts less useful in trying to minimize taxes on a family member’s inheritance. Other forms of giving, such as gift annuities and charitable remainder trusts, remain helpful at reducing estate taxes for a large number of taxpayers.
Estate planning is always a complex process that differs greatly depending on one’s financial circumstances, stock portfolio and family structure. As such, the tax law changes are likely to affect each Texas resident in unique ways, making it crucial for all such individuals to consult with a financial advisor and tax law attorney to ensure their estate plan properly suits their unique situation.
Source: Investing Daily, “How Estate Planning is Changing” Bob Carlson, Jun. 07, 2013