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Top Tax Issues Related to Estate Planning

When dealing with your estate there are many issues and regulations you must keep in mind. You want to make sure that the directions and steps you put in place are administered the way you want them.

Also, you don’t want to leave your loved ones with an unorganized confusing estate plan as it might add more stress to their already stressful state. There are many obstacles you need to keep in mind when discussing your estate plan, today we will focus on the tax-related issues surrounding it.

One of the main concerns for people attempting to come up with a great plan for their estate is the tax issues related to it.

One of the main concerns for people attempting to come up with a great plan for their estate is the tax issues related to it. There has been a recent change in laws of estate tax that has affected a large majority of people. So you must think about hiring an estate planning attorney from Maryland for a solid estate planning process to protect assets and avoid concerns that could decrease the estate.

Now they are able to focus more on ways to minimize tax liability and capital gains taxes for their clients. This could help save you and your family thousands of dollars when the time comes.

In most cases, people need an estate planning attorney as there are a large number of documents they can draft for you and advise you on. Some of these documents include:

  • Trusts
  • Wills
  • Powers of attorney
  • Healthcare powers of attorney
  • Medical directives (Living wills)

Just taking Trusts for example to show the number of different plans you can implement and, the intricacy of these plans.

Here are a few different types of trusts:

  • Long term GST (dynasty) trusts
  • Income only trusts
  • Charitable lead trusts
  • Charitable remainder trusts
  • Special-needs trusts
  • Grantor retained trusts
  • Irrevocable trusts/ irrevocable life insurance trusts
  • Trusts for minors
  • IRA management (conduit) trusts
  • Qualified personal residence trusts
  • Medicaid asset protection trusts (MAPT)

These are just a few examples of various trusts, and they all have different tax-related issues pertaining to them. A lot of people think you have to be a financial guru or have bucket loads of money to need trust, but that isn’t the case. Trust is just a legal tool used to expand your options and give you the power to manage your assets in multiple ways.

It lets you protect your wealth from taxes and leave it behind for your family’s generations to come. An estate planning attorney can help you with any and all financial or legal advice necessary to steer your way through these complex and always changing tax laws, to ensure you have peace of mind.

Now that we have pointed out the complexity of setting up an estate plan, let’s discuss the 3 big tax issues you can run into if these are not set up correctly. Forbes goes into great detail discussing these tax issues and how you can avoid them. The 3 main issues Forbes stated were:

  • Not fixing FLP’s
  • Not swapping out
  • No selection of Trust Situs

FLP’s or Family Limited Partnerships are often formed to hold a family’s investment or business assets for one or maybe a few reasons. First is valuation discounts for estate and gift tax purposes. This would give a discount on the total interest that needed to be paid.

Another would be to keep control, someone in your family could set up an FLP to keep the family investments even if they give away most of the interest, this will enable them to still control the entity. Lastly, these FLP’s are also created to provide asset protection.

If your family member was sued and they have interest in the entity, this would help decrease the amount paid to the claimant overall.

Not swapping out, many irrevocable trusts include swap powers. These types of trusts are often used to remove assets from your estate to save on estate taxes. This is how Forbes defines how these swapping options work:

“Many of the irrevocable trusts formed for many years have been structured for income tax purposes to be characterized as “grantor” trusts. This means that the income of the trust is reported on the income tax return of the person who created the trust (called the “grantor” or “settlor”). So, the settlor, not the trust, pays income taxes.”

This would be a great option to keep in mind when defining your estate plan.

Finally, the issue of “no selection of Trust Situs”. Trust Situs simply means the state that your trust is based. Often, this will entail that the trust is administered, and the state laws govern that trust.

Just one example of how this could help would be; if your state has heavy income tax laws you could possibly avoid them by setting up your trust based on a more income tax-favorable state.

Needless to say, setting up an estate plan can be a very complex, confusing, and furthermore stressful process. Picking the right estate planning attorney could not only save you from harsh taxes on your estate but also give you peace of mind.

Every state’s tax laws and the way you need to set up your estate plan to give you the most benefit are always changing. This is why hiring a great estate planning attorney can take some of the burdens off your plate and enable you to spend more time with the ones you love most.



Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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