The Tax Man Is Coming, And He Has New Tricks


For years, estate planners have done what is considered traditional estate planning. They developed plans primarily to minimize the future tax on real estate and paid only minimal attention to the tax consequences.

It was perfectly fine years ago, when the estate tax was much more severe than the income tax potential. This is due to relatively high tax rates, a low non-inflation-indexed tax exemption, and relatively low capital gains rates.

However, Congress has significantly changed the tax system. As a result, the impact of estate planning on income tax is becoming increasingly important, especially for Massachusetts residents.

Attention must now be given to the importance of tax base considerations in estate planning because of the narrowing of inheritance tax rates and income tax rates. In fact, in most areas valued at less than $ 5.34 million, inheritance taxes are no longer a problem. At present, income taxes play an important role, mainly because of the lack of attention on the basis of income (cost or adjusted basis) of fixed assets. State succession taxes have also become of paramount importance because of the lower threshold of one million dollars set for taxes in states like Massachusetts.

The bad news for most middle-class taxpayers is that, for years, they have been fed on a stable diet, minimizing wills and trusts. Worse still, they have been storing outdated documents for many years, thinking about finishing their estate planning and not wanting to be disturbed. Unfortunately, these old documents will no longer serve their purpose of reducing taxes. A major problem also arises when federal tax minimization plans, unless up-to-date, result in a Massachusetts tax that is totally avoidable for a married couple. Although these documents do not allow for federal tax savings on estates, since very few middle class taxpayers will ever pay estate tax, they will increase the tax on the income of their heirs when selling valued assets. In addition, in Massachusetts, an additional $ 1 million avoidable tax may be triggered upon first death by a large, 100% preventable Massachusetts land tax.

Conclusion: the game starts from scratch. Let 's focus on minimizing the income tax for most taxpayers and forget the minimization of tax. Unless your estate exceeds $ 5.34 million, your biggest risk is the Massachusetts estate tax as well as the overpayment of income tax due to a lack of property. Pay attention to planning the tax base in your will and in your trust. Do not make this mistake. Review your documents as early as today to eliminate these hidden tax issues.


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