Planning for Life

By Harry S. Margolis

Last week, I wrote about the reasons I disagree with President Biden's proposal to eliminate the step-up in basis. Here I'll discuss some other tax proposals he has which I can support.

By Harry S. Margolis

As a candidate, President Joe Biden proposed getting rid of the "step-up" in basis. This is a provision that erases capital gains upon the death of the owner. Here's how it works:

What's a Step-Up in Basis?

Let's say you bought some stock for $20,000 and today it's worth $50,000. If you were to sell the shares for this amount, you would have to pay tax on capital gains of $30,000. The purchase price is the stock's "basis." The gain is the difference between the proceeds and the basis.

By Harry S. Margolis

If you or your spouse (or both) are not U.S. citizens and you live in Massachusetts with a total combined estate of more than $1 million, your estate tax planning could get complicated. This is in large part because non-U.S. citizens are not eligible for the marital deduction which permits unlimited tax free gifts between spouses whether during life or at death.

By Harry S. Margolis

The case of Phannenstiehl v. Phannenstiehl (475 Mass. 105, 2016) established the rule that if your parents create a trust for your benefit and leave discretion over distributions in the hands of the trustee, the funds in that trust will not be considered part of the marital estate upon your divorce. (See our description of this case: In Pfannenstiehl Case, MA SJC Affirms Use of Asset Protection Trusts.) A recent Massachusetts Appeals Court decision appears to narrow this rule. 

By Harry S. Margolis

Perhaps only of interest to estate planners, but of great interest to them, the Massachusetts Supreme Judicial Court has ruled in Shaffer v. Commissioner or Revenue (SJC-12812, July 10, 2020) that out-of-state QTIP trusts are includible in the Massachusetts estates of surviving spouses if the deceased spouse's estate filed a federal QTIP election for the estate. This is probably relevant mostly for larger estates and for older trusts, since given the current $11.58 million federal estate tax threshold, few estates today need to file a federal QTIP election.

By Harry S. Margolis

With the current federal estate tax threshold set at $11.58 million (over $23 million for a married couple) in 2020, fewer than 2,000 estates are expected to pay any tax this year. That's out of more than 2.8 million deaths, or approximately 0.07% of all estates. (The threshold for Massachusetts estates is $1 million.)

By Harry S. Margolis

That house on the Cape, Martha's Vineyard, or in the Berkshires, what happens when the owner dies and is not a Massachusetts resident? Is it subject to the Massachusetts estate tax?

Yes.

And it's a bit complicated.

By Harry S. Margolis

How often should you review your estate plan? The answer, like that to many other legal questions, is it depends. It depends on how old you are and whether there has been a significant change in your circumstances. If you are over age 60 and you haven't updated your estate plan in many decades (which is the norm among our clients), it's almost certain that you need to update your documents. After that, you should review your plan every five years or so. But if you're younger, you don't need to do so nearly as often.

Age

Here are a few age ranges and what they mean in terms of estate planning:

By Harry S. Margolis 

With the threshold for federal estate taxes now at $11.58 million (in 2020), you probably don't have to worry about it or do any planning to avoid it. Very few Americans have federally taxable estates. But the threshold for Massachusetts residents is $1 million. So, if you live in Massachusetts and your estate is above $1 million—which isn't hard if you own a house in many communities in this state—should you engage in estate tax planning?