Changing tax laws have changed estate planning

On Behalf of | Dec 30, 2015 | Estate Planning

Many Nevadans have trusts established in order to pass assets to their intended beneficiaries outside of the probate process. At the same time, the tax laws have changed significantly in the past few years, with the federal estate tax exemption being increased to $5.43 million. This higher exemption amount means that a large number of people do not need to worry about avoiding estate taxes on their assets.

The federal capital gains tax rate is as of December 2015 lower than the maximum federal estate tax rate on the value of the estate over the exemption. Assets that were transferred to trusts and that are later sold will be subject to capital gains tax on the amount they have appreciated in value. This means that people may want to try to undo trusts they have set up and transfer their assets back to their estates.

There are several things people can do in order to protect their assets from capital gains taxes. They may want to gift an asset to a parent. That parent can then gift it back to them when they pass away, allowing it to be free of capital gains taxes. A specialized type of trust called a Joint Exempt Step-Up Trust may be a good idea for married couples. This type of trust allows a surviving spouse to sell assets in them without capital gains taxes.

There are several other strategies that may be used to help avoid the assessment of capital gains taxes. People may want to discuss their own estate plans with their estate planning attorney, who can review existing documents and work to modify or update them if necessary.