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The Death Tax -> Will it Survive?

Posted by Larry Jones on Jan 3, 2019 9:30:00 AM
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Death Can Be a Significant Event in One's Life

As I watch the unending parade of advertisements, I'm struck by how many of these promos point to things related to health. I see commercials for exercise machines, all being dominated by strong, good looking men and women in their late twenties. They drink vitamin drinks, eat vegan, love puppies, and vote for Utopia. I wonder if they realize that they will die one day.

No matter how you slice it, death is coming to us all. As far as I'm concerned it will be a significant event. Think about it, once you've taken that last breath, your participation in the events of this world have ceased. No more hopes and dreams, no more vacations, no more anything. The world goes on just as if you never existed, but your part in it is over.

Except for one thing.

Even though your concerns with this life are over, this life's concerns with you are not. Your grieving Uncle Sam will be wanting some of your sweat equity.


The Tax on Death

There is a school of thought that says that even after you are dead, your estate should be subject to a "death tax." This should be done, so "they" say, in order to fund the obligations of the state, as well as prevent huge dynasties from springing up and becoming a "ruling class." That's the argument. Others would say that no matter what justification you use to steal a person's hard earned assets, it's still stealing (I tend to lean more toward this second position).

The estate tax has been in place now for a hundred years,  and the arguments for and against it have gone on the entire time. Under today's law you are allowed to have quite a large estate, up to $10.9 million for married couples before the tax becomes an issue, but then the tax rate can be as high as 40%. Historically the tax threshold has varied, and has been as low as $60,000, in 1976.

President Trump has expressed his intentions to eliminate the "death" tax, and Republicans have expressed a desire to support this. If so, here are some things for you to consider in your estate planning:

1. Hold off on making irrevocable gifts.

Creating irrevocable trusts have long been a technique that tax worry-warts have used to remove assets from their estates. The only problem is that once you've done that you cannot easily undo it. Consider delaying any new irrevocable decisions until the new rules are in place.

2. Have a valid estate plan in place, no matter what.

Any good estate plan should have provisions inserted into it to account for changing legal and tax scenarios. Don't wait to have a valid will and/or trust established just because of future uncertainty. The consequences of dying without a valid will are not pretty.

3. Reassess making "valuation discounts."

The IRS has generously allowed the use of certain techniques to discount the value of assets, in order to get a leg up on the estate tax. Recent Treasury Department proposals have been designed to close up some of these advantages, with the result that many are rushing to take advantage of the current tax laws, before the changes go into place. Now, with a new administration, the urgency seems to be going away, as these regulations seem unlikely to survive.


Nothing in Washington is Permanent

Supposedly the laws as they exist today are permanent. That's what we were told just a few years ago. But this is Washington, where the rules of the game are constantly changing. It can be difficult to design and implement a bullet-proof estate plan under these conditions, but that doesn't mean things should be neglected either. Guess that's job security for me! As the healthiest generation of Americans in history become the healthiest corpses, we should be ever-vigilant about our finances.

Until next time,

Larry

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As a fiduciary I am required to always act in your best interests, and as a professional planner, it's my job to be familiar with all types of possible solutions and financial vehicles. In short, I have no interest in selling any particular product or any affiliation with a particular company. I work for my clients.

Are you:

  • concerned that your tax bill is too high?
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  • wishing you could find more free time?
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  • worried that Uncle Sam is going to enjoy your retirement more than you are?

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