How Taxes Can Affect Your Estate Planning Decisions

By Lane V. Erickson, Idaho Estate Planning Attorney

At the Racine law office, we have been privileged to provide customized estate planning and probate services to our Idaho clients for over 70 years. We do this by taking the time to get to know each of our clients so we can better understand their needs. After this we use our team of experienced Idaho estate planning attorneys to craft and provide a plan for each client.

Our team of premier includes partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley. All the attorneys on our team are knowledgeable, experienced, and have received the highest ratings possible from previous and current clients.

One of the most important estate planning areas we can advise our clients about is the tax consequences of an estate and how taxes can affect their estate planning decisions. Again, our goal is to assist each person individually with their own particular circumstances based on their estate, their family members, their loved ones, and what our client wants to accomplish.

The purpose of this article is to give you a starting place when it comes to thinking about how taxes may affect your estate plan. Keep in mind that this article is just a summary. If you have questions or concerns we encourage you to download and review our free Estate Planning Questionnaire and schedule a free 30-minute consultation where we can meet with you personally to answer your questions. This is the best no obligation way to begin your estate planning.

When it comes to estate taxes, the first area that everyone is always concerned about is whether they or their loved ones are going to have to deal with an inheritance or death tax when they or their loved one passes away. The good news is, probably not.

As it stands today, which is June of 2020, an individual's estate would have to be larger than $11,580,000 before a federal estate tax would apply. For a married couple it is double that amount which is $23,160,000. Because of this, only the wealthiest of individuals need to worry about their estate being taxed after their death.

The next area that clients often want to talk about is capital gains taxes and how the step-up in basis may help them. Sometimes clients decide they want to avoid probate in Idaho. To accomplish this one of the options they often talk about is whether they should gift their home to their children or others while they are alive.

If this happens, the individual who receives the house as a gift may then be faced with a hefty capital gains tax if they choose to sell the home at a later time. The reason for this is that because the house was given as a gift while the giver was alive, the person who received the gift also received the same cost basis the original owner had in the house. In other words, if the individual bought the home for $50,000 30 years ago but the home is now worth $300,000 the original cost basis of $50,000 will go to the new owner. If the home is not their personal residence and they sell the home for $300,000, the capital gain would be $250,000, and a tax on that capital gain will be owed.

However, when an individual inherits real estate, as a result of the death of the original owner, there is a step-up in basis of cost. In other words, the value of the home on the date of that individual's death, becomes the new cost basis for the individual who inherits the home. Using the same example above, if the home were received as a gift through an inheritance after the death of the original owner, the stepped-up cost basis for the new owner would be $300,000 and not the original $50,000. If the person who inherited the home decides to immediately sell the home, they will have no capital gains tax.

Keep in mind that the laws associated with taxes as they apply to estates and estate planning can change at anytime. This was evident in 2018 when President Trump changed the law essentially doubling the amounts that were then used to determine whether a “death tax” would apply to an estate.

The bad news is this very law is scheduled to sunset on December 31, 2025. Unless Congress acts to extend this deadline, the exemption amounts will then be cut in half and go back to the schedule that existed before the law was changed in 2018. In other words, the exempt individual’s estate would only exist for those with less than about $5.5 million and the couples’ exemption would be about $11.5 million. Again, This only affects those who have wealthiest estates, but it will affect more than it does now.

Other estate planning tax laws could also change at any time. Because of this, we do our best to keep our clients informed of any major changes that occur. When this happens, we invite our clients to come in and meet with us to discuss their estate plan and see if the changed laws have any impact or require any additional planning.

Our goal is to help our clients all have up-to-date and well-thought-out estate plans. Each client should have a platter protection for themselves while they are alive and a plan of distribution for their family members and loved ones after they pass away. We have helped numerous clients Reach This goal and we are confident that we can help you too!

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.