Does your asset ownership work with your estate plan?

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.


A collection of thoughts and links for 2023 tax prep season

Tax Season Tips and Links

As we gear up for tax season, here is a collection of thoughts and suggestions:

As noted previously, the TCJA expires after 2025, so we encourage planning for all those changes.  For some ideas, see our post on turn tax planning on its head for income taxes and see this post on estate planning.

When you work on your IRS form 1040 for 2023, how do you plan to answer the question on digital assets?  That question has changed over the years and now reads:

At any time during 2023, did you:  (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)? 

2023 form 1040

Some tax pros think this question covers items such as a ticket for events like the Super Bowl, as these are non-fungible tokens, or NFTs, being unique and recorded in digital ledgers.  Therefore, if you purchased such an NFT, you need to answer “yes.”  When in doubt, saying yes may be the best response.

We reported that the SECURE Act 2.0 allows for unused 529 plan contributions to go into a Roth IRAs.  Here is a planning suggestion for parents and grandparents:  start early with 529 plan contributions so that there is a surplus over college costs that can be converted to a Roth later, within the limits.  

There are also some significant cases before the Supreme Court we are watching, including the Moore case on unrealized income.  

The IRS continues to deal with a huge backlog of mail to process, including many amended returns.  They say that this is due to prioritizing answering calls over processing during the Pandemic.

And the IRS warns again to be wary of phishing attempts by phone, e-mail and text.  They have a page on phishing and how to respond.

Massachusetts changed the estate tax law so we now have a true exemption of $2 million.  This may tilt more toward planning to avoid capital gains rather than estate taxes.  

For more ideas, please see “Year-end Tax Planning 2023-2024 and recent changes” to read more and let us know if you want to discuss any of the strategies. 

Let me know if you want to discuss anything. 

Thank you and be well.