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Estate planning still required if the death tax dies

The current tax reform proposals under consideration in Congress call for the demise of the federal estate tax, which was also nicknamed as the death tax. Part of the reasoning for ending this tax is that it will eliminate complicated estate planning. Nonetheless, a well-thought-out Arizona estate plan will still be necessary, even with the death of the estate tax.

Because of recent increases in post-death transfers that are tax-exempt, liability from taxes has less emphasis in estate planning. Regardless of taxes, however, estate planning helps assure the intended disposal of assets after death. Executing a will and creating a trust helps assure that assets go to the right heirs.

A complicated family situation increases the need for this planning. Setting up a trust helps with the prudent financial management of assets bequeathed to minor children. Individuals who were married multiple times and have children from different spouses need serious planning to decrease the likelihood of disputes among different family members and even litigation.

If the federal estate tax is eliminated, tax planning will be necessary nonetheless. Now, taxpayers receive a step-up in the tax basis of the assets of an inheritance in exchange for the potential liability of the estate tax.

The end of the federal estate tax will likely eliminate the step-in basis. Heirs will have to account for capital gains tax liability. They may also have more difficult obligations for accounting for the tax basis of the deceased individual who left them these assets.

The federal estate tax exemption is currently $5.49 million. Arizona does not impose estate or inheritance taxes. However, 14 states and the District of Columbia have an estate tax. Six states have inheritance taxes covering the recipients of gifts.

Inadequate estate planning can lead to financial and emotional problems for heirs and even to lawsuits. An attorney can help assure that estate and tax planning fulfill a person's intent and that documents comply with Arizona law.

Source: The Motley Fool, "3 reasons you'll still need estate planning even if the death tax disappears," Dan Caplinger, Oct. 21, 2017

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