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Articles Posted in Taxation

Every family should consider the impact of taxes on their assets when making important decisions. High net-worth individuals and families, however, know they should especially consider relevant tax laws before making big estate plan or asset management changes. But staying on top of the ever-changing task landscape can be tricky. Even small changes year over year can lay the foundation for tax-saving opportunities—or pitfalls. A skilled estate planning attorney can help clients with substantial estates plan for these changes and nuances while considering the potential impact of laws on the value of the estate.

For example, the IRS announced it will raise the estate and gift tax exclusion limit in 2023. Individuals can gift up to $12.92 million to their heirs and beneficiaries, an increase from $12.06 million in 2022. Combined limits for married couples will be nearly $26 million in 2023.

Tax-free gifts also see a higher annual limit for 2023. Individuals can give away $17,000 per recipient without reducing the lifetime exclusion, a $1,000 increase from $16,000 in 2022. These adjustments are a routine part of the IRS’s annual inflation adjustments.

Estate planning can seem complicated at any income level. Considering your assets, thinking through how you want those assets distributed, choosing guardians for your children, and selecting executors, trustees, and other fiduciaries can all take time and money, especially when done without the guidance of a skilled estate planning attorney. For high net worth individuals, though, this can be even more difficult with more assets of varied type to consider. Another issue high net worth individuals, who generally have more than $1 million in liquid assets, have to carefully consider is the impact of taxes on their estates. Taxes can limit the amount you ultimately bequeath to your beneficiaries. An attorney will know the ever-changing wealth and estate tax landscape and help you avoid taking a big hit when the time comes.

Wealth Transfer Taxes

In addition to the more commonly known income taxes, there are three types of taxes to consider when estate planning. These types of taxes are collectively known as wealth transfer taxes and include gift taxes, estate taxes, and generation-skipping taxes. These can all be minimized or avoided through creative planning and the use of trusts.

Gift taxes are taxes paid by a person who transfers assets to another person without receiving something in return and are quite common. There are federal gift taxes that range from 18% to 40%, depending on the amount of the gift, and some states impose gift taxes as well.

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The recently passed Inflation Reduction Act includes several initiatives that provide tax breaks and rebates for households that take steps to improve their energy efficiency. Consumers who make energy efficient home upgrades and purchases may qualify for up to $10,000 or more in these benefits, in addition to other benefits such as lower electricity bills and a smaller carbon footprint.

Tax Credits for Homeowners

Homeowners could get up to a 30% tax credit for installing solar panels or other renewable energy equipment, such as windmills. Costs incurred in installation from 2022 through 2032 qualify for a 30% tax credit. The credit falls in later years, dropping to 26% in 2033 and 22% in 2034. This extends a previous tax credit set to expire in 2023 and, starting in 2023, includes battery storage technology so homeowners can pair solar panels with storage.

Other home efficiency projects, such as energy-efficient windows and water heaters, also qualify for a 30% tax credit toward installation costs. The cap on these savings is $1,200 a year, though some projects can qualify for higher caps. The installations must meet certain efficiency criteria to qualify, and some specific items have individual caps. The credit also covers the cost of a home energy audit (up to $150) and an electrical panel upgrade (up to $600).

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It’s that time of year again: As the snow moves in, another year is on its way out. Although you may find yourself busy with holiday gatherings and the multitude of outdoor activities that Colorado has to offer each winter, it is also an important time to check in on your estate plan.

Here are some of the main areas of estate planning to review in 2021.

Tax Exclusions

Over the past several months, the U.S. Congress has been considering tax legislation that could drastically change the face of estate planning.

Versions of the Build Back Better bill have included provisions to trigger capital gains tax on a regular basis for assets held in trusts, upon death, and when making a gift. Congress also considered dramatically reducing the unified tax credit, which would have restricted the reach of grantor trusts as an estate-planning tool.

But the bill in its current form does not impact the estate tax system directly. Where does this leave Coloradans who have made changes to their estate plan in response to this legislation?

Members of the U.S. Congress recently proposed a striking $3.5 trillion spending plan that, if passed, would be funded largely through a significant tax overhaul. Here is what Colorado residents need to know about the tax increase proposal as it currently stands.

Reduction in the Unified Credit Amount

Effective in 2022, the current proposal halves the estate and gift tax exclusion. This change essentially reverses the Tax Cuts and Jobs Act’s recent change to the exclusion and will affect Coloradans with large estates.

As ever, your watchdogs, Bennett and Diedre Braverman were glued to the national scene when President Obama gave his State of the Union address in case anything of value fell out for us to tell you about.

This won’t be of interest to many of you, I’ll admit right up front. It’s a niche blog post. But I couldn’t ignore it because for those of you who own businesses or have children launching into the workforce, this could be great news!

If you don’t offer a traditional retirement plan, until now, you’ve been at a loss, without tools to help your lowest-wage earners with retirement.

F Forbes recently shared its list of 7 Major Errors in Estate Planning. I’d like to share them, one at a time, with comments, and then add a couple they missed. Rather than swamp you with a treatise, here’s one that I really feel passionate about.

There are so many easy ways to screw up your estate plan – which can damage family relationships for life in many cases – and so few ways to make sure it’s right. I’ll share how our clients get peace of mind that their plan’s going to provide what they need and bring their family closer, not the opposite.

Not Having a Plan

When people think of technology, they think of a fast-paced, growing field. When they think of the law, they tend to think of stagnant printed volumes of laws stacked together in a library. The difference between the pace of technological development in space technology and estate planning technology is not as great as many imagine.

I visited the eye doctor today. My vision has changed a lot since I got my prescription lenses only 6 months ago. I think of optometry as a pretty unchanging area of medicine (“Is it better with one? Or two? One? Or two?”). I was surprised that they had two new tests for me today: to check the health of my areas of my eye deeper than my retina.

Your regular (annual to no-more-than-every-three-years) legal planning check up is similar to your annual eye exam. You and your attorney are searching for the changes that are particular to you (like the testing of your eye’s vision – your prescription). And you’re also looking for changes that apply to most or all patients: the new exam technologies.

First, let me share the fabulous news about “Retirement Accounts” then the bad news that I have to tell all the people who ask me about investment choices in a Retirement Account.

Tax-free Versus Tax-deferred

Retirement Accounts – 401(k)s, (403(b)s, IRAs and others – have wonderful tax advantages. Some allow you to put pre-tax money into an account, which then grows tax-free for years or evendecades until you withdraw it. When you withdraw it, you pay tax on the withdrawal. So they aren’t “tax-free”, they’re “tax-deferred.”

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