April 24, 2019
Discuss Your Grantor Trustee and Changes in the Tax Law with a Michigan Estate Attorney
The Tax Cuts and Jobs Act (TCJA) had some favorable terms for high-net-worth estates. For example, the tax exclusion for federal estate taxes is roughly double what the exclusion was before the new tax laws were enacted. High-net-worth individuals may be able to revise their estate plan to take advantage of the increased exclusions.
However, not all the changes in the TCJA are beneficial for estate planning. One major change impacts the taxes paid on income from grantor trusts. If you have a grantor trust, you may want to discuss your estate plan with a Michigan estate planning attorney as soon as possible. Your current estate plan could have a significant impact on a future divorce settlement if your estate plan includes a grantor trust that benefits your spouse.
How Did the TCJA Impact Grantor Trusts and Divorce Settlements?
One of the biggest changes in the TCJA regarding divorces is the change in how alimony is taxed. Under the TCJA, alimony is no longer considered taxable income for the payee and payors cannot deduct alimony paid to an ex-spouse on their income tax returns. However, an overlooked change in tax laws may also impact some individuals who use grantor trusts in their estate plan.
If you create a trust, you are responsible for paying taxes on the income generated by the trust, even though you may not be a beneficiary of the trust. However, IRC §682 stated that income from a grantor trust paid to an ex-spouse would be considered taxable income for the ex-spouse.
Unfortunately, the TCJA repealed this section of the tax code. Now, if you have a grantor trust that is paying income to your ex-spouse, you are responsible for paying taxes on that income. In other words, your ex-spouse is receiving tax-free income at your expense. Examples of grantor trusts that may be impacted by the change in the tax code include Spousal Limited Access Trusts, Lifetime Qtip Trusts, and Qualified Personal Residence Trusts.
Reviewing Your Estate Plan After Changes in Tax Laws
If you have not reviewed your estate plan after the changes in the tax code, now is the time to schedule an appointment with a Michigan estate planning lawyer. It is wise to review your estate plan after any major life event, such as a divorce, marriage, birth of a child, or death of a family member. However, even if you do not experience a life event that could impact your estate plan, it is wise to review your plan with your attorney periodically. Changes in tax laws and other laws can have a significant impact on your estate plan and long-term financial goals.
For example, estate planning areas that individuals may want to review in light of the changes in the tax code include:
- Asset protection strategies
- Transfer of wealth to other generations
- Maintaining control over investment decisions for beneficiaries
- Charitable planning strategies
- Special needs planning
- Medicaid planning and long-term care planning
- Avoiding probate and reducing estate taxes
- Protection from creditor claims, divorce actions, lawsuits, and other potential financial issues
- Incapacitation planning
- Retirement planning
The practice of periodically reviewing your estate plan applies to all individuals, not just high-net-worth individuals. All individuals can benefit from a periodic review of their estate plans.
Contact a Michigan Estate Planning Attorney for More Information
The attorneys of The Elder Care Firm of Christopher J. Berry, CELA provide comprehensive estate planning services. An estate plan is an extremely important factor in your overall financial plan. When combined with plans for retirement, long-term care, and financial management, your estate plan can help you ensure that you and your heirs have the means to provide for your needs and desires in the future.
To discuss estate planning with one of our Michigan estate planning attorneys, call 888-390-4360 or use the contact form on our website to contact our office.