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How To (Estate) Plan For 2017

On Behalf of | Dec 23, 2016 | Blog Posts |

As we prepare to ring in the new year, there are a few upcoming legal changes set occur early next year. These are both from the Federal and California State governments, and some are still yet to be determined. Below is a brief rundown of major legal changes related to estate plans in expected in early 2017:

First, let’s talk about what we know for certain: California is encouraging its residents to create a trust. Built into the California 2017 budget is a provision disallowing Medi-Cal estate recovery from reaching revocable living trusts. This means a funded trust based estate plan has an even bigger additional benefit than before. The new rule provides a roundabout tax-cut to those with revocable living trusts who end up receiving Medi-Cal at the end of their life. The issue they are trying to resolve is that the California Courts are over-scheduled, with many county Probate Courts being months behind. While a Will based estate plan still has to go through a Court Supervised probate, a funded and uncontested revocable living trust avoids going to Court. Thus, by exempting them from estate recovery, California is encouraging its citizens to make Trusts in hopes to reduce Court cases. This means 2017 will be a good time for California residents to do a new estate plan or update a Will based estate plan into a Trust based estate plan.

Second, we have a law we know is certain, just not when it goes into effect. After a bipartisan push to fix an unintended drafting error, Federal law now allows individuals with physical disabilities who receive government needs based benefits to sign their own estate plan without interfering with the government benefits. Under prior law, any disability would prevent an individual from being able to sign their own “Special Needs Trust.” Unfortunately this lumped in people with purely physical disabilities who are perfectly competent to sign legal forms. Now this is fixed under Federal law. However, they did this while California’s legislature was on recess, so we will have to wait until January 2017 to know when and how this will be adopted in our state.

Last but not least, is the least certain: the incoming Republican administration’s tax proposals. Unfortunately, the President and his Congress are set to disagree on several budget decisions that may directly affect your estate plan. This means we won’t know exactly how to do tax planning until that dispute is settled and the Federal budget is passed. Among the things they do agree on are (1) repealing the Estate Tax (2) changing Capital Gains Tax step-up basis on death rules, and (3) changing income tax rates for nongrantor trusts (ones that pay their own taxes). Like everyone in our industry, we wait with bated breath to see just how different the tax code will look in the coming years. For those with tax planning in their estate plans (e.g. Bypass or QTIP Trust), the second half of 2017 will be a good time to check in and see if any of that could be updated to be more efficient under the new tax regime.

We at the Dayton Law Firm wish everyone (especially those who made it to the end of this lengthy blog post) a great holiday season and happy new year.



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