When we meet with clients, the majority of our conversation obviously involves those clients’ estate plans and life insurance policies. But that’s not all we talk about. We cover a range of topics — from family to the weather to current events. One of the most popular subjects as of late? The presidential election.
There’s no question that this election has everyone talking. It’s easy to get caught up in the political theater that this election has become. The fact is, though, that there are crucial financial issues associated with this election that will directly affect our wallets. Let’s take a moment to refocus on those issues and examine how estate planning and taxes are likely to be affected by the newly elected president.
The Candidates’ Positions on Estate Tax
Using 2017 tax rules, you can die with up to $5.45 million in your estate or $10.9 million for married couples. While that amount will be completely exempt from estate tax, anything above that amount is taxed at 40% federally plus any state inheritance taxes that apply to you.
Hillary Clinton’s position is to reduce that threshold from the current $5.45 million down to $3.5 million and to raise the tax rates in a progressive way that would penalize the largest estates the most. Donald Trump’s plan would eliminate the estate tax altogether and generate tax revenue from other sources instead, such as by raising capital gains taxes.
If Clinton gets elected, we are likely to see a new round of estate planning on behalf of the many families that may become exposed—or more exposed—to estate taxes as the result of lower tax thresholds. This is where incorporating life insurance into your estate plan can change the game.
Why You Need Life Insurance
A properly developed life insurance strategy will help you remove assets from your estate and pass more money along to your heirs in a tax-efficient way. For example, some of us may own life insurance policies in our own name, which means the proceeds will be included in any estate tax calculation.
Perhaps that didn’t matter much when your total estate value was only about $3 million. However, with real estate and stock prices on the rise, you may slowly, and perhaps without realizing it, enter the estate tax realm. A very wise move may be to transfer ownership of your policy into an irrevocable trust which keeps those proceeds outside of your estate.
Those who are on the cusp of hitting the estate tax threshold may also want to start taking advantage of annual gift tax exclusions. Current law allows you to give away up to $14,000 per person in 2016 without doing a gift tax filing. If you gift that money into a life insurance trust for the benefit of your children and grandchildren, you can reduce the size of your estate while you’re alive and keep the insurance proceeds income and estate tax free for your heirs.
Life Insurance = Flexible Wealth Creation and Transfer
The need for life insurance planning won’t only apply to a Clinton presidency. If Trump wins and implements a new, higher capital gains structure, that could create some issues as well, particularly for families with long-held assets. If capital gains taxes are on the rise, investors need to rethink their asset positioning because the value of tax-free assets then become that much more valuable. Once again, life insurance will stand out in that scenario as the most flexible wealth creation and transfer tool. This is due to the income and estate tax-free nature of a properly structured life insurance portfolio
At Howard Kaye, we believe that the earlier you start to plan your estate, the better prepared you will be. What you don’t want to do is shuffle at the last minute to create an estate plan and risk getting caught up in a scenario in which assets are getting unnecessarily taxed. Speak to our experts today by calling 800-DIE-RICH and learn how to implement a rock-solid plan that will maximize the transfer of your wealth to the next generation.
