Critical Factors That Could Affect Your Estate Planning

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Estate planning can be complex. Far from being static, the circumstances that dictate proper estate planning often change. Laws evolve, and markets can shift drastically, which is why it’s a good idea to review and update your estate plan as necessary. But first, you should understand some of the potential changes. If this seems complicated or confusing, you don’t have to worry. At California Probate and Trust, PC, our experienced estate planning attorneys can help you every step of the way. In the meantime, get to know some of the basics.

Ordinary Income

You might not think ordinary income can have an impact on estate planning. But in a modern economy, ordinary income can fluctuate or suddenly change. These types of changes in ordinary income affect what assets you hold on to and what assets you decide to transfer to heirs, and when. For example, the Biden administration proposed The American Families Plan Act, which could significantly impact your ordinary income if passed. The Act would restore the top marginal tax to 39.6%. The American Families Plan Act is essentially a mixture of tax cuts and raises when it comes to ordinary income. It could impact estate planning by influencing how much money you bring home to invest and save.

If you would like to learn more about how your ordinary income impacts your estate planning or the potential changes to your tax rate, contact us at California Probate and Trust, PC. Our estate planning attorneys will help you figure the right estate plan for you and your family.

Capital Gains Hikes

For the 20% capital gains tax rate to apply to a married couple filing jointly, they must have a combined income of over $500,000. Most Americans, however, fall into the 0% capital gains tax rate. If the American Families Plan Act passes, it will increase rates on long-term capital gains and capital dividends from 20% to 39.6%, impacting business owner decisions and estate planning decisions for many people. Such a dramatic change could cause them to modify their estate plans in creative ways.

Some may choose to hold onto assets until death instead of selling. Others might consider giving more appreciated property and assets to a charity to avoid paying higher taxes when selling the property. And business owners may want to consider selling their business faster, resulting in gains year after year. Or, they may opt for an installment sale rather than a single-year sale.

Step-Up In Basis Rules

Modification or removal of step-up in basis rules could have a direct impact on your estate planning. These rules essentially mandate that appreciated property at death passes to your heirs at the value it is worth at your death, as opposed to your basis. This rule allows many stocks and other properties to appreciate during your life and for you to leave them to your heirs without them having to pay capital gains taxes on the appreciation. However, The American Families Plan would close the step-up rules for gains over $1 million or $2.5 million per couple. This law could significantly change which assets you want to leave to your heirs and which ones you choose to spend during retirement.

Factors to Keep in Mind for Estate Planning

Considering the ways your circumstances can potentially change, there are three points you should consider when putting your estate plan together.

  • Determine how charitable planning can impact your estate plan. Charitable giving can be a great way to give while keeping your taxes down.
  • Review your beneficiaries every couple of years. Circumstances may change what you want to leave and to whom. You may want to shift property from one to another based on their income. You may also want to increase or reduce what you choose to leave based on your income.
  • Ensure your estate has the right liquidity. If the estate doesn’t have enough liquid assets, issues can arise quickly, especially with a business or appreciated assets.

These are just three essential points to consider. Depending on your particular circumstances, estate planning could be significantly more complicated and require the help of a seasoned estate lawyer to get it right. Fortunately, at California Probate and Trust, PC, we can help with every step of the process.

California Probate and Trust, PC

At California Probate and Trust, PC, we help families & professionals in California with all their estate planning needs. Although The American Families Act and other similar acts are only proposals, it is vital to understand the potential ways they can impact your estate plan. As laws and circumstances evolve, so should your estate plan. But don’t worry, you don’t have to wade through complicated laws yourself. Our trust attorneys are here to help. We can help you navigate the complex world of estate planning to ensure that you have the right estate plan for yourself and your family.

Our free guide, 7 Reasons Why You Need an Estate Plan, answers many common questions about estate planning. To get your free copy, call 916-603-2782, leave your name, mailing address, and phone number, and we will mail the guide to you right away.

Do you have questions or concerns about proposed changes in the law and how they can impact your estate plan? Don’t wait until it is too late. Contact California Probate and Trust, PC today at>916-674-2066 or complete our online form to schedule your free consultation.

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