Many people are aware that there are currently laws that are scheduled to lead to a death tax repeal in 2010. However, this is one area of the law where significant changes should be expected over the next year. President Barack Obama has already announced plans to prevent the estate tax from disappearing in 2010. Due to the current economic emergency, the ability to transfer wealth tax free to the next generation may be reduced to $1 million in 2010 rather than in 2011.
IN MASSACHUSETTS THE ESTATE TAX PROBLEM ALREADY EFFECTS ANY FAMILY WITH OVER $1 MILLION INCLUDING HOMES, INVESTMENTS AND INSURANCE
Many are aware of the importance of eliminating the completely avoidable Massachusetts estate tax on all estates over $1 million. This tax cost families approximately $100,000 in 2008 and that increases to approximately $230,000 in 2009. This tax is completely avoidable if the proper steps are taken to eliminate it. However, eliminating the Massachusetts estate tax is not your family’s only concern– the president and congress have announced plans to reduce the Federal tax free estate threshold. With large projected budget shortfalls over the next years due to the economic crisis, the federal estate tax is a potential source of revenue $324 billion over the next ten years.
THE FEDERAL ESTATE TAX CAN COST YOUR FAMILY SIGNIFICANTLY MORE
If the Massachusetts estate tax will effect your family, you must also address the much larger problem in the scheduled increase in federal estate taxes that will affect many possibly as soon as next year. When you look at your projected estate tax amounts factoring in an increase in your net worth from today’s level, even at a very modest 4% rate of growth, the federal and state estate tax can be quite large– the combined rate is 50%. While a return to growth in the value of your assets is good, it creates a big tax problem when the applicable exclusion is reduced to $1 million. Now may be a good time to review the current value of your assets as well as to consider your tax savings opportunities.
DO YOU HAVE AN ESTATE TAX PROBLEM? WHAT CAN YOU DO ABOUT IT?
This combination of a reduced applicable exclusion (the tax free amount), only $1 million in 2010 or 2011, and an increase in value of your investments and other assets creates a major tax problem for many clients. It is important to be aware of this and begin to take steps to increase the gift and estate tax free amounts for both federal and Massachusetts state tax purposes. There are techniques and planning opportunities available that should be considered, especially with values at lower levels, the opportunity to save gift and estate taxes is much sweeter now. Most people we help do not wish to pay more in estate taxes than absolutely necessary. We are available to review these tax saving opportunities with you.
If you do not take advantage of the annual tax-free amounts, the opportunity is lost as each year goes by. Another problem is, due to IRS regulations, some of the tax reduction planning involves a three-year waiting period to be effective. Because of the combination 3 year waiting period and the 2010 or 2011 reduction in tax free amounts to $1 million, it is critical to evaluate your situation now to see if there is a possible tax problem and if so, take immediate steps to reduce or eliminate it. The time to address and act on tax reduction opportunities that you have is now. Please call our office at 781-237-2815 to review your situation to see if you have a growing tax problem, and if so, develop a plan to reduce or eliminate taxes.
ARE YOU CONFIDENT THAT YOUR INVESTMENTS ARE SAFE AND PRODUCTIVE?
In addition to estate tax considerations, you may wish to review your investments. In a turbulent market it is more important to review your investments to make sure that you are properly positioned to meet your financial goals and objectives over the coming years. Working with a collaborative team of professionals can help develop a comprehensive approach for their tax, retirement, estate and investment planning.
If you wish to protect you retirement and investment assets, while saving more in taxes, please review your situation and consider a current review of your estate tax liability, both at today’s estate tax rates and a projected estate tax for life expectancy. It is also vital to determine that your assets are owned properly so that you will be entitled to the maximum state and federal applicable exclusions.
PROTECTING HOMES AND ASSETS FROM NURSING HOME COSTS
Growing concerns for many clients includes protecting homes and other assets from increasing medical and nursing home costs as well as from lawsuits and other claimants. The 2006 law increased the cost of nursing home and other medical care for many of our clients (currently about $400/day, $12,000/month which equals $720,000 for a 5 year stay at today’s rates). Please call our office at 781-237-2815 if you would like information on the provisions of this law and how it makes it more difficult to protect your life savings from nursing home costs. We will help you evaluate what steps you can take to protect yourself and develop a plan to deal with this possible problem.
PROTECTING IRAS FROM THE 70% TAX AND MAXIMIZING TAX DEFERRED GROWTH
Because the rules for IRA’s, Roth IRA’s, 401K’s, etc., have changed, methods can now be implemented to protect these investments, enabling you to provide significant protected tax deferred growth for children and grandchildren. The results of careful wealth management can be significant. The retirement plans inherited by children and grandchildren can even be protected from lawsuits, divorce and financial problems. Provided your IRA is properly managed and coordinated with your estate plan, it can be a powerful tool to build wealth and pass it on to heirs and beneficiaries.