Estate planning and income taxes

The unfortunate reality of life is that no one lives forever. At some point, everyone passes. It is important for Michigan residents to plan for their passing by creating an estate plan. An estate plan can help determine how a person’s assets are going to be distributed following their death. By creating an effective and comprehensive estate plan, people can help their loved ones deal more easily with their affairs.

Just like other areas of the law, estate planning laws are constantly in flux. This means that an estate plan that was created years ago may not have the same effect today as it did when it was created. In order to make sure peoples’ estate plans are still giving their family the maximum benefit once they have passed people should regularly update their plans to take advantage of current laws.

In particular, people should make sure they understand the tax implications of their current estate plans. While in the past it was important to avoid the federal estate tax through estate planning tools, today the laws have created a shift. Under the current law, the estate tax will only apply when a person has more than $5.25 million in assets — or $10.5 million for couples. Therefore, the majority of Americans won’t need to worry about it.

However, income tax rates continue to rise, and take more money away from people. Therefore, experts suggest using estate planning and tax planning tools to shift money in order to avoid income taxes — which are more immediate — instead of estate tax, which may not even apply.

In any case, it is important for Michigan residents to remember to evaluate their estate plans regularly to take advantage of shifts in the law. Through the right estate planning, people can both limit their income tax obligations and maximize their future estates.

Source: The Wall Street Journal, “Estate Plans Shift Focus to Income Taxes,” Arden Dale, Sept. 6, 2013