The Paradigm Shift in Estate Planning

Estate planning had always been focused on maximizing the amount to be left to the heirs.  Reduction of the taxable estate was the goal.  Because of the increase of the Estate Tax Exclusion to $5,430,000 (2015) for most estates, the focus is now on income tax, specifically raising the cost basis of the inherited assets in order to minimize the capital gains tax that will be imposed upon sale.  It’s not just the tax, but the opportunity to change investments without the loss of capital that can enhance the heir’s economic situation.

The desired result is obtained by arranging one’s assets so as to receive a step up in cost basis upon each death.  This is accomplished by direct transfer to the surviving spouse or the use of a Qualified Terminal Interest Provision (QTIP) Marital Trust in the estate plan of the first to die.  The plan is designed to include the entirety of both estates in the second estate.  Will not that result in Estate Tax?  Usually not; the first estate will have a zero taxable estate and thus, under the portability provisions, will pass its entire estate tax exclusion amount to the surviving spouse’s estate.  The survivor’s estate will have an almost $11 million (indexed for inflation) estate tax exclusion; usually resulting in no estate tax.

For larger estates, the residuary Trust estate plan may be necessary; the Trust is drawn so the exclusion decision may be delayed until the death of the first spouse to die.  Generation-Skipping Trusts are no longer attractive as a tax planning tool.

See one of your estate planning attorneys to update your plan.

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  • About the Author

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    John W. Eilers

    Of counsel, John Eilers has focused his practice of law on estate planning, estate and trust administration (including probate litigation) and non-profit law.  He has been recognized by the Ohio State Bar Association as a specialist in the practice of estate planning, trust and probate law.

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