Category Archives: Estate Tax Laws

Impact of One Big Beautiful Bill

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The One Big Beautiful Bill is now law

After considerable wrangling, Congress passed the One Big Beautiful Bill and President Trump signed it into law.  As we noted before, the new tax law meets President Trump’s campaign promise to make provisions of the 2017 Tax Cut and Jobs Act or “TCJA” permanent; it also adds some new provisions.  We updated our abbreviated summary of the new bill at the bottom of this post. 

What is the Impact of New Tax Law?

This example on how the new tax law did not result in simplification is worth repeating:

Assessing the impact and planning – The increase in the deduction allowed for state and local tax or “SALT” to $40,000 could reduce taxes for many, allowing them to include more state and local taxes when they itemize.  But, the impact is blunted because the standard deduction also increased (you take the larger of the two).  Then the benefit of itemized deductions is capped when you hit the 35% bracket (so there is no increased benefit for the 37% bracket).  The above-the-line charitable deduction also reduces the impact of itemizing.  And increasing the SALT deduction could mean you owe the Alternative Minimum Tax or “AMT.”  In other words, you have to run tax projections to determine the best action. 

Bunching – In previous posts, we have advised bunching of deductions into a single year so you can optimize itemizing.  That planning may be both more important and tougher to do as you now have to watch state and local taxes as well as charitable contributions.  

New or enhanced provisions – There are many new provisions that you need to review to see if they could affect you and determine if you qualify and need to act.  The new Trump account provides an alternative to 529 plans for young families saving for children.  And access to health savings accounts (HSAs) for seniors could provide a new resource for planning. 

Expiring credits – The expiration of electric vehicle credits and energy-efficient home credits means that you need to act this year if you were considering those purchases.  

Conclusion

You may see benefits from the final tax law, but extracting the full amount will require careful planning.  

In the meantime, please contact us if you have any questions and good luck!

Steven  

A Quick Summary:

The new law will keep the same tax rates and AMT exemption. 

It increases the state and local tax or SALT limit to $40,000, but then cuts it back for income over $500,000.  The cap will increase by 1% each year but revert to $10,000 in 2030. 

It extends the standard deduction from TCJA with a temporary increase to $32,000 for married filing joint taxpayers or “MFJ” for 2025 through 2028 and adds a $6,000 bonus standard deduction for taxpayers over 65, but this phases out for income of $150,000 to $250,000 for MFJ and also ends in 2028. 

There is now an above-the-line deduction for up to $25,000 of qualified tip income and $12,500 for qualified overtime, if your income is below the related caps. Note that the income is still subject to FICA and Medicare deductions.  

The new law restores the “above the line” deduction for up to $2,000 to a charity for married couples or $1,000 for all others beginning in 2026. 

The new and used electric vehicle or EV credits end September 30, 2025; the credits for energy efficient homes end December 31, 2025.  

The dependent care credit is increased to $7,500 in 2026.

It temporarily increases the child credit from $2,000 to $2,200 through 2028, adjusted for inflation and subject to the same phaseouts as the current law. 

You can deduct up to $10,000 of car loan interest for new cars with final assembly in the US, but with a phaseout for income over $200,000 for married filers and $100,000 for singles. 

You can contribute up to $5,000 per year into a new Trump account for a child until age 18 beginning in 2026.  The account can then be used for education, business or a new home.  Employers can contribute up to $2,500 which is excluded from the employee’s taxable income.  Qualified distributions are subject to capital gains tax while all other distributions are subject to ordinary rates plus 10%. 

Adoption credits are expanded as are contributions allowed to ABLE accounts.  Roll overs from tuition plans to ABLE accounts are allowed.  Qualifications for tax-free distributions from 529 plans are expanded.

Seniors receiving Medicare can contribute to health savings accounts or HSAs if they have a high-deductible health insurance plans.  This is a great way for tax sheltered growth to cover future bills.  The new law allows taxpayers and spouses to make catchup contributions. 

The bill adds 1% tax on remittances by non-US Citizens for transfers out of the USA.   

The rule for 1099-K reporting finally goes from $600 to $20,000 and 200 transactions while 1099NEC reporting goes from in excess of $600 to $2,000. 

A new credit up to $1,700 is allowed for qualifying contributions to 501(c)(3) organizations that grant scholarships.  

A new tiered structure was added for tax on qualified small business stock gains.

Losses on gambling are limited to 90% of winnings. 

The QBID stays at 20%.        

And estate planning:

The estate and gift tax credit rises to $15 million in 2026.  As we pointed out in a post a while back, fewer people will owe estate taxes so more may want to work on the income taxes due after their deaths, utilizing the step up in basis to shelter gains.

Beyond basic estate planning – helping your heirs sort it all out

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When we talk about estate planning, most people think of signing a will (some may even mention a revocable trust as well).  But having signed documents is only the beginning; not following through can still leave a mess for your heirs.  You need to go beyond the basic plan. 

The Basic Plan – means you executed a will and probably a revocable trust, updated beneficiary designations and changed ownership to match your documents to minimize estate taxes and control flow of your inheritance.  For this post, we assume you have a good plan (check out the post to be sure) and if you have not acted, please see estate planning checkup: why you don’t, why you should. 

Beyond Basic – is the focus of this post so you prepare the people who survive you so they can assemble the pieces you leave behind and make decisions.  We review this roughly in the order in which they will have to address everything and respond so nothing is left unresolved. 

Write notes or better provide a memorandum now

How do you address “beyond basic estate planning”?  One way is to have a detailed conversation or better yet to  provide a memorandum for your personal representative, trustee, children or close friend that can help them navigate all the steps required after your death.  Start by with telling them where to look for everything.  But a good “beyond basic estate planning” plan encompasses more than listing where to locate the documents you signed, it tells survivors who to notify (attorney, tax preparer, insurance agent), how to access your accounts on line or in person, and who gets what and when.  

Note:  make sure they know where your original will is located, as well as whom to contact.  Not having the original can cause problems.  Same for other originals like stock certificates and car titles. 

Notifications

When you die, the first step for your survivors will be to notify family and friends and to arrange for services.  Make sure your survivors know everyone you want them to contact or even who you don’t want attending your services.  Also, make sure they know if you want to be buried or cremated.  If you have a plot, let them know where.  If you envision a particular service, tell them. 

Beyond telling friends and family of your services, there will be more notifications:

Professionals – make sure they know your attorney and tax prep person so they can notify and they can be ready for their roles – more on this below.

Medical professionals – depending on your death, your family will want to make sure your family doctor and others are notified. 

Social Media – do you want them to post about your demise on social media? – more on this below.

Social Security – your heirs will need to inform the administration so that they stop your benefit.  Your spouse will need to sign up for the spousal benefit.  

Banks and investments – your heirs will need to let banks and brokers know so no one other than your personal representative tries to gain access. 

Board of directors or other office positions – if you are on a board or hold office, be sure survivors know whom to contact. 

Death certificate 

Soon after your death, a medical examiner will produce a death certificate.  That will be required for filing in probate, if necessary, and for access to benefits and accounts or making certain transfers.  Your personal representative will want to provide copies to your attorney but hold some copies for transferring accounts and titles.  

Internet age – social media and online accounts  

What do you want your heirs to do with your social media?  You want to avoid anyone gaining access and attempting identity theft.  Do you want them to leave your profile active for a period? 

Do you have shared accounts where you are the manager, such as a photo stream on your smartphone?  Be sure survivors know how to access and copy.  For instance, anything in an Apple photo stream disappears once the source photo is deleted so deleting your iPhone account could cause all photos taken by you to be lost and pictures you contributed to various photostreams will disappear.  Check with your provider to be sure how to archive what you want archived.

The same may apply to other items stored on your smartphone.  You may need to maintain your account until others access and save everything.  You can also setup cloud storage and make sure they know how to access. 

How do they access your online accounts?  How do they terminate all those subscriptions you never canceled?  Your memorandum should include information for key people that are likely to survive you.  They will need IDs and passwords for all your online accounts.  You may also want to provide access to your smartphone so they can use the apps that may have reward balances. 

With access to your online accounts, they can stop recurring payments, end subscriptions, and pay bills until they have access to your assets.  If your assets are already in trust, the trustee may be able to pay bills as required.  If your assets are not in trust, the personal representative will need to transfer them to estate accounts after being appointed. 

Make sure your list of all IDs and passwords identifies key accounts and is provided to somebody you trust so they can manage access until accounts are transferred. 

Assets and accounts

When listing your online accounts, provide a detailed list of all your assets so nothing is overlooked and ends up unclaimed.  Your survivors may be able to see the accounts on line and provide statements to your attorney. 

If you are holding assets for others or promised to make a gift (see below), be sure to state this in your memorandum. 

As noted above, they will need certain originals, like your will and titles to cars.  If you hold certificates for stocks or bonds, they will need to know where to look – a safe deposit box?  If you have cryptocurrency or other digital assets, they will need to know where your wallet is and how to access your accounts. 

Specific gifts of personal items

If you have items for which you have certain people in mind, make sure your personal representative knows.  As noted above, if you are holding items for others or have promised to make gifts, be sure your personal representative knows your intent.  You may also want certain personal items to go to specific people, such as heirlooms, jewelry, memorabilia, etc.  You may have signed a tangibles memorandum with your will; if not, be sure to list items and recipients.

Life insurance and benefits

If you have life insurance, make sure they know where the policy is and who handles it.  The personal representative will need to contact them to arrange payment to the policy beneficiaries. 

The same for any pension for survivors and other benefits. 

Retirement plans

If you have qualified plans, make sure beneficiaries know they will be receiving your account.  They may need a death certificate and have forms completed by the personal representative to have the account transferred to them as an inherited IRA. 

Tax returns

Notify your tax preparer so they know to advise on what needs to be filed.  They will file a tax return for the part of the year when you were living and then an estate return for the remainder. 

Conclusion

Think through all you do now and imagine what others would require in order to be able to do those things then write it down!  Save your survivors from having to be detectives. 

In the end, your memory will survive and you will be known for your deeds and how you treated others. 

Steven

Does your asset ownership work with your estate plan?

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Too often, we find clients have not matched their asset ownership and beneficiary designations to their estate plan documents or not updated those documents for changes in circumstances.  This can cause problems, like having to file with the probate court at death, having the wrong person in a key role or even paying unnecessary estate taxes. 

Here is an example on an ownership error:  the couple owns most assets jointly.  This means that their revocable trusts are never funded so they will fail to use the available estate tax credits at the first death, and they will probably pay more estate taxes at the second death than they could have.  Having assets pass to a spouse may simplify their life but that may cost their children more in estate taxes. 

Another example would be owning assets individually rather than in a revocable trust.  This means the personal representative must file with the probate court to transfer assets.  If all assets were owned by the trust instead, the time and expense of a probate court filing would be avoided, and survivors would have the benefit of the assets in the trust immediately.  An alternative would be placing transfer on death or TOD instructions on bank and investment accounts, much as one provides beneficiary designations on IRAs.  

Finally, if your relationships with the people named in your will and trust have changed, not updating could mean the wrong people are involved in your estate when you die, leaving a mess for your survivors.  

As we mentioned in a prior e-mail, Massachusetts changed the estate tax law last year, so we now have a true exemption of $2 million.  This may tilt your approach more toward planning to avoid capital gains rather than estate taxes.  Regardless, please be sure that your asset ownership and designations work with your documents. 

Let me know if you want to discuss anything. 

Thank you and be well.

Steven

Should your estate plan try to avoid income taxes rather than avoid estate taxes?

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With the federal gift and estate tax exemption nearing $13 million, a married couple can have close to $26 million in their estates before any federal estate tax would be due.  That leaves only a small percentage of people in the US who actually need estate plans focused on avoiding estate taxes.  Those who are comfortably below the threshold can instead focus their plans on reducing income taxes.

Estates get a step up in basis at death, so that assets do not pay both estate and income taxes.  For example, the house owned by a couple often has a low basis, so taxes will be due on sale.  When they die, they get a step up in basis, eliminating that gain and the corresponding income tax that would be due at death. 

To illustrate, here’s an example:  a married couple own a house worth $2 million for which they paid $500,000, they have $2 million in retirement accounts and $5 million in broker accounts.  Their combined estate of $9 million is well below the federal exemption of nearly $13 million per person, so no federal estate taxes will be due.  They have $1.5 million of gain if they sell the house, of which $1 million would be taxed after applying the $500,000 exclusion on the sale of a principal residence. 

If they have the standard estate plan, they will have revocable trusts that use the state and federal estate tax credits at both the first and second deaths.  If proper elections are made, no estate taxes will be due at the first death and no federal estate taxes at the second death.  They will also get the step up in basis. 

But what if one spouse dies many years later?  The half with the step up at the earlier death could now be subject to taxes on gain when the heirs direct the estate or trusts to sell.  If the house is then worth $4 million, the half in the trust of the first to die has new gain of $1 million on which income taxes will be due. 

If instead of having half the house counted at the first death, what if it is treated as passing to the survivor?  Then there is a full step up at the second death, with no gain.  And they have not traded capital gains for estate taxes.  While assets are counted in the second estate, rather than using the exemption at the first death, the first estate can make proper use of the deceased spouse’s unused exemption or “DSUE.”  Since 2012, federal law allows any portion of the gift and estate tax credit not used in the first estate tax filing to be carried to the second spouse’s death or “ported,” if the proper election is made.  This “portability election” for the DSUE is made on the estate tax return. 

But what happens when the federal credit drops back down in 2026 to the old amount as scheduled, which, after adjusting for inflation, is expected to be around $7 million?  The estates for the couple in our example still avoid federal estate taxes, using the DSUE of up to $7 million from the first death and the $7 million credit at the second death.  

Planning for state estate taxes may be necessary (for Massachusetts residents, the trusts can be used to shelter $1 million, the maximum credit).  And you may want to use trusts to control who gets access to the estates and when.  Also, you may need to plan for the generation skipping transfer tax or “GST” tax, which requires use of trusts and proper elections at death. 

If your net worth is enough to need estate planning but you do not expect to owe federal estate taxes, then your plan can address avoiding capital gains and use the DSUE to ensure that estate taxes are still avoided.  

  • Note that Massachusetts increased the estate the exemption from $1 million to $2 million as of January 1, 2023.  This may affect your planning. 

Let me know if you would like to discuss this.

Steven

Estate planning checkup: why you don’t, why you should

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Why you don’t:

We have written previously stressing the need to have an estate plan, so you do not leave a mess, and why you may need life insurance to protect others.  Few people will disagree with the need to have a current plan and to provide for survivors, but not everyone acts.  

So, why is it that people fail to take action?  Rick Kahler wrote recently about Overcoming Client Procrastination with Financial Planning.  In his post, he lists factors that cause people to put off action that agree is important to address: 

  1. Avoidance.  Feelings of self-doubt, fear of pain or anxiety around the task, depression, fear of asking for help, lack of trust.
  2. Perfectionism.  Fear of failure, fear of being criticized (both externally by others and – often more powerfully – internally by parts of yourself).
  3. Ambiguity.  Lack of clarity about the task, feeling overwhelmed, difficulty prioritizing in the absence of a crises, being focused on immediate tasks.
  4. Narcissism.  Over-confidence in getting it done at the last minute. Needing chaos or pressure to provide adrenaline, the ability to focus to the exclusion of everything else, and a feeling of being fully alive.
  5. Physical Issues.  Fatigue, illness.
  6. Lack of knowledge.  Not knowing what you don’t know, unsure how to get needed help and information.
  7. Financial.  Not having the funds to take the necessary action.   

Do any of these apply to you?  If so, we can help so please contact us. 

Why you should:

One reason to review your estate plan is that the Biden administration may seek changes to the estate and income tax laws; you want to make sure your documents have the flexibility to address these changes.  The current federal gift and estate tax credit is close to $12 million.  However, it is scheduled to drop to between $5.5 and $6 million in 2025 and the administration may push for a lower credit to be imposed sooner.  Also, the administration may try to eliminate the step-up in basis at death.  We will continue to monitor any proposed law changes and post updates. 

There are other tax law changes to address, such as the elimination of the “stretch IRA.”  You may need to revise your beneficiaries.  Also, you will want your executor or personal representative to elect portability of your federal credit to minimize taxes and may want your documents to address the generation skipping transfer tax credit.

Another reason to act is to provide for your digital assets, something old documents may not address.  For example, you can give your attorney-in-fact under your durable power of attorney access to your digital assets and you can assign your digital assets to your revocable trust so your trustee has access.  Digital assets include e-mail and text messages, photographs, videos and other files on your computer, on-line accounts such as your investments and social media, or even intellectual property and patent rights.  You may also have collectibles that need to be addressed,

Another reason to act is to ensure that someone knows how to access all your passwords if something happens to you.  Create your own “Rosetta Stone,” a document telling them how to access your digital life, with IDs and passwords, and then make sure an immediate family member or close friend knows where to find it.  This way, they can locate all your important documents, find assets and insurance, and handle your social media if something happens.  You may also want to provide a memorandum to your personal representatives and trustees detailing your wishes, including thoughts on when to distribute to children, protecting from creditors, and even burial or cremation.

If you to take the time now to review and update your plan, be sure:

  • that you have documents that are in order,
  • that the documents are correctly executed,
  • that you provided adequate resources for survivors, including life insurance, and
  • that your beneficiary designations and asset ownership all coordinate with your documents.

When you do, you will have improved matters for you and your family! 

Contact our office if you have any questions or comments. And be well!