Client Strategies For Income And Estate Tax Planning In 2018 And Beyond

By Lloyd Lofton

The beginning of the second quarter of 2018 is upon us. The effects of the most comprehensive tax reform package passed in decades are just now starting to be realized or planned for. Many individuals and corporations tax reduction will see a tax reduction, along with modifications to many tax rules including deductions.

Those affected, besides individuals and corporations, include but are not limited to estates, trusts and small businesses. Let’s take a look at some potential income and tax planning strategies that our prospects and clients may want to consider.

Estate Planning

Many states have their own “death taxes” so while the lifetime exclusion changes in the new tax law may have doubled for estates and gifts, state death taxes have to be reexamined. For states like Massachusetts where estate tax is applicable for estates over $1 million, your clients and prospects may consider life insurance to provide liquidity at death for the survivors to pay these taxes.

Some of your clients and prospects may want to assess which of their property has a low basis so they can try to maximize step-up at death, taking advantage of the full step-up in cost basis at death, which is still available. So, for example, the person receiving a gift from a living person will result in a carryover basis for that recipient. Consequently, some trust may be considered “poured-over” to new trusts to account for step up in cost basis.

So what about those in high income-tax states? There are tax-friendly states that could offer a means of mitigating state taxes. If your client or prospect already has a funded trust, like a bypass trust, then “poured-over,” those trusts may be right to structure assets so they will benefit from step-up cost basis at death, being careful to consider if there is an appropriate amount of estate/gift tax exemption in place.

2018 Income Tax Planning Strategies

1. When in a high tax bracket, draw from tax-free accounts. When in a low tax bracket, draw from tax-deferred accounts.
2. Run the numbers to help clients and prospects who could benefit from alternating between claiming the standard deduction in some years and itemizing in other years.
3. Municipal bonds may be a consideration for those subject to the 3.8 percent Medicare surtax or are in high tax brackets.
4. Can a Roth bring the needed tax-free income? The recharacterize or undo provision is no longer available. Now may be the time to revisit these with clients or prospects.
5. Other options to lower taxable income include: donating individual retirement account assets to charities, 529 college savings plans, deferred compensation, health savings accounts, flexible spending accounts or current retirement plan contributions.

Significant changes may be on the horizon for continued changes to the tax code, and addressing the national debt and entitlement programs .This provides an environment for individuals to constantly evaluate and re-evaluate their current situation and project how these plans will or won’t provide the predictable lifestyle they are expecting.

This confusion and constant state of flux in the marketplace is the reason your services are and will continue to be needed and valued by your clients and those prospects you have yet to reach out to.

Lloyd Lofton is the past president of the Senior Insurance Marketing Association and the managing partner of 7 Figure Sales Tools, Marietta, Ga. His latest book is Leads to Results. Lloyd may be contacted at Lloyd.lofton@innfeedback.com.

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