What 2020 Tax Changes May Bring for Wealthy Families – Annapolis and Towson Estate Planning

What happens in the political landscape in 2020 could have an impact on wealthy individuals, in a positive and a negative way. The biggest impact may be changes in estate and income taxes. With income taxes, the tax brackets are indexed, so they will go higher in 2020. There are also new IRS thresholds, so people will need to be aware of these changes.

The article “What Wealthy Clients Need to Know About 2020 Tax Changes” from Financial Advisor offers a look at what’s coming next year.

The tax rates were generally lowered, and thresholds increased. The top bracket for married couples in 2017 was 39.6% for couples whose taxable income was higher than $470,700. In 2020, that same bracket is 37%, with a new income threshold of $622,051.

There are more holiday gifts from the IRS. The estate exemption increases to $11.58 million in 2020, although the annual exclusion for gifts stays at $15,000. The maximums for retirement account contributions have also been increased.

The mandated penalty for not having health insurance is gone. Therefore, anyone who has the income to self-insure without having a policy that is ACA-qualified won’t have to pay a penalty. However, that varies by state: California enforces a tax penalty for people who do not have health insurance.

A major consideration for 2020 is the higher standard deduction. This may mean more strategic planning for which years people should itemize. Some experts are advising that taxpayers bunch their deductions, so they can itemize. One strategy is to do this every other year.

Many nonprofits are advising their donors to plan their charitable giving to take place every other year for the same reason.

With the stock market continuing to hit record highs, it may also make sense for people to transfer highly appreciated securities to donor advised funds.

Another potentially big series of changes that is still pending is the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The legislation is still pending, but it is likely that some form of the bill will become law, and there will be further changes regarding retirement accounts and taxes. The bill passed the House in the spring, but it still pending in the Senate.

Reference: Financial Advisor (December 2, 2019) “What Wealthy Clients Need to Know About 2020 Tax Changes”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Should We Include Our Children in Our Charitable Giving Plans? – Annapolis and Towson Estate Planning

Transferring wealth to the next generation is a major part of estate planning, but few people discuss their philanthropic goals with their heirs.

CNBC’s recent article, “Don’t expect Mom and Dad to clue you in on your inheritance,” says that 8 out of 10 financial advisors said that “some” or “hardly any” of their clients involve the next generation in family philanthropy, according to a recent survey from Key Private Bank.

It would great for the older generation to get their children involved in the process because they frequently don’t see eye to eye on philanthropic causes. As a result, it’s rare for a person to get their children and grandchildren involved in philanthropy. That’s one of the biggest mistakes parents make when they think of wealth transfer planning and preparing their children to be responsible heirs.

The IRS will allow you to transfer up to $11.4 million ($22.8 million if you’re married) to your heirs, either in gifts during your lifetime or in bequests at death, without the 40% estate and gift tax. Remember that charitable bequests are deductible, lower your gross estate and reduce the estate tax bill.

Donor Advised Funds are tax-advantaged accounts that people can open at a brokerage firm and fund with cash, securities and other assets. It’s important to establish the charitable vehicle, like a donor advised fund, during your lifetime.

It’s best to be open about your own values and the causes you want to support.

Children would like to participate in their inheritance beyond the financial assets. They also should understand what values were important for Mom and Dad.

Listen to your children and grandchildren because younger generations bring a different view to the charitable giving conversation. Getting them involved early will also prepare them to be good stewards.

One more thing: try not to rule from the throne. As your heirs get older and devote themselves to different causes, try to step back. Let them drive the charitable effort. Give them guidance and support.

Reference: CNBC (September 18, 2019) “Don’t expect Mom and Dad to clue you in on your inheritance”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys