What You Need to Know for Financial and Estate Planning in 2017

by Brian Pirri | Sep 28, 2017

financial estate planning

A good amount of people have a “set it and forget it” attitude towards estate and financial planning. When we ask them about their current plans, sometimes they’ll respond “I have a will, trust, it’s in my safe.. I am good.” That would be great if the tax code  and various laws weren’t constantly changing and evolving. More importantly, we as people are anything but static. When I was a little girl I wanted to be a ballerina, so it’s a good thing my financial plan wasn’t written at 8-years-old and never updated. Let’s take a look at some of the things that have changed this year and some things that have stayed the same.

IRA Contribution Limits Remain the Same

This is the fifth consecutive year that limits for IRA contributions have been capped at $5,500 with a $1,000 catch-up if you are over 50. (Please note this is per person not per account; if you have multiple IRA accounts you are capped at $5,500).

ROTH IRA Contributions are Limited by Income Which Increased This Year

Unlike a traditional IRA in which anyone can contribute but not all contributions are tax deductible, some people may not be eligible to contribute to a ROTH based on their income level. This year, the IRS increased those limits by $2,000 phasing out between $118,000-133,000 for single taxpayers and $186,000-196,000 for married couples.

There has been no change to the annual exclusion amount for gifts

As most of us know, the federal gift tax applies to even the smallest of gifts. However, in an effort to avoid having everyone file gift returns there is an annual exclusion. For several years that number has remained at $14,000.
Keep in mind there is no limit to the number of people you can gift $14,000 to and you may also make an unlimited number of gifts to your spouse in your lifetime. You may also spend money directly on education or medical costs for someone else and this is not considered a taxable gift.

Increases in the exclusion amount

As of right now if you decide to make gifts larger than the annual exclusion amount, you won’t have to pay taxes on them right away. The tax code unifies estate and gift tax- thus, you have a single tax credit in which you can make gifts and transfer estate property to your heirs; up to $5.49 million which is up $40,000 this year.

Currently Gift and Estate Tax Rates Remain the Same

The gift tax law can be confusing on its surface and may be something you want to consult an accountant on. However, with the unification of the gift and estate tax credit, the number to know effectively is 40%. A married couple can double their exclusion amount and a surviving spouse can utilize what remains of their deceased spouse’s credit (known as portability).

State Estate Tax

Although many will not have to worry about a federal inheritance tax under the current tax code, please note that many states including Massachusetts still impose an estate tax, with an exemption amount of one million and a sliding scale up to 16%. Some states are also moving away from the state tax and others are increasing the exemption amount.

The Uncertainty of Death Tax Laws

Another thing to think about in planning with your financial advisor and trusted attorney is the possibility that a tax reform plan proposed by President Trump could affect the future of the estate taxes significantly. The plan calls for a complete repeal of the estate tax. There is a possibility that unrealized capital gains could be taxed at death. Under current rules assets receive a “stepped-up basis” upon death, thus we are not taxed on those unrealized gains. There is also the possibility that the first $10 million of the gains would be excluded in the new plan. For now, it is uncertain.

Continue to have Dialogue with your Attorney and Financial Planner

Whether things change or remain the same, it is important that you continue to meet with your estate and financial planners so that you can have a plan in place that reflects your current life situation and your current wishes for the future. At New England Investment and Retirement Group, we want to ensure that our clients are prepared in all stages of life for buying a business, acquiring new assets, retirement and any major milestones.