For most of our lives many of us have heard the old adage “Money can’t buy happiness.” And we can all think of numerous examples of individuals where this certainly seems to be true – whether among the powerful and famous, or within our own family or group of friends. But is that really true? Research over the last few decades suggests “NO!” In fact, many studies show that in one sense money can buy happiness. But it’s not the amount of money we have, but rather how we SPEND our money that can indeed increase our happiness – although perhaps not in the way Madison Avenue or Amazon Prime would like us to think. First, let’s address the skeptics among you who feel sure that if you simply had MORE money you would indeed be happier. Statistics show that certainly isn’t true, since 70% of all lottery winners or those with a sudden financial windfall end up bankrupt within a few years.1 Carl Jung, famous psychologist, said in fact that the keys to happiness were five things.
Atlanta Financial Newsroom
Future of the Federal Estate Tax
While no one can predict the future, the possibility of tax reform is once again in the spotlight. If it occurs, it may very well include repeal of the federal estate tax and related changes to the federal gift tax, the federal generation-skipping transfer (GST) tax, and the federal income tax basis rules.
History of the federal estate tax
In general, an estate tax is a tax on property a person owns at death. In one form or another, a federal estate tax has been enacted or repealed a number of times since 1797.
|Estate tax enacted||Estate tax repealed|
*For 2010, the estate tax was repealed, but later retroactive legislation provided that an estate could elect to be subject to estate tax in return for a stepped-up (or stepped-down) income tax basis for most property. The estate tax was extended in 2011, with some changes.
The estate tax has undergone many changes over the years, including the addition of a federal gift tax and a federal GST tax during modern times. A gift tax is a tax on gifts a person makes while alive. A GST tax is a tax on transfers to persons who are two or more generations younger than the transferor. In recent years, property owned at death has generally received an income tax basis stepped up (or down) to fair market value at death.
During the 2000s, the estate, gift, and GST tax rates were substantially reduced, and the gift and estate tax lifetime exclusion and the GST tax exemption were substantially increased. The estate tax and the GST tax, but not the gift tax, were scheduled for repeal in 2010 (although certain sunset provisions would bring them back unless Congress acted), but legislation extended the estate tax and the GST tax in 2011. (For 2010, the estate tax ended up being optional and the GST tax rate was 0%.) The gift and estate tax lifetime exclusion and the GST tax exemption were increased to $5,000,000 and indexed for inflation in later years. For 2013, the top estate, gift, and GST tax rate was increased to 40%, and the extension and modifications were made “permanent.”
|2017 Estate Planning Key Numbers|
|Annual gift tax exclusion||$14,000|
|Gift tax and estate tax basic exclusion amount||$5,490,000|
|Noncitizen spouse annual gift tax exclusion||$149,000|
|Generation-skipping transfer (GST) tax exemption||$5,490,000|
|Top gift, estate, and GST tax rate||40%|
Federal estate tax
Repeal of the estate tax seems possible once again. If repeal occurs, it could be immediate or gradual as during the 2000s. Would it be subject to a sunset provision, so that the estate tax would return at a later time? All of this may depend on congressional rules on the legislative process, other legislative priorities, and the effect the legislation would have on the budget and the national debt.
Federal gift tax
If the estate tax is repealed, the gift tax may also be repealed. However, it is possible that the gift tax would be retained as a backstop to the income tax (as in 2010). To some extent, the gift tax reduces the ability of individuals to transfer property back and forth in order to reduce or avoid income taxes.
Federal GST tax
If the estate tax is repealed, the GST tax would probably be repealed (as in 2010). If the gift tax is not repealed, it is possible that the lifetime GST tax provisions would be retained, but the GST tax provisions at death repealed.
Federal income tax basis
If the estate tax is repealed, it is possible that the general income tax basis step-up (or step-down) to fair market value at death would be changed to a carryover basis (i.e., the decedent’s basis before death carries over to the person who inherits the property). In 2010, a modified carryover basis (a limited amount of property could receive a stepped-up basis) applied unless the estate elected to be subject to estate tax. It is also possible that a Canadian-style capital gain tax at death could be adopted in return for a stepped-up basis for the property.
“How did the new tax bill affect me?” was the question on everyone’s minds this tax season, and for good reason. Even though this was touted as the greatest simplification of the tax code in my lifetime, I didn’t notice any reduction in time spent preparing returns. Those of you who reviewed your returns in detail noticed that the schedules look drastically different although contain all the same information. The short answer for many is that it didn’t materially change your overall tax liability. The outliers fell into one of a few buckets…
What would you do if you received a major financial windfall? Would you buy a new house or vacation home, give some to your family members, donate to your favorite charity, or take the trip(s) that you have always dreamed about?While most people will not receive a major financial windfall during their lives, it is not uncommon. You might receive a financial windfall by:
When I first sit down with prospective new clients to learn about their finances, one of the most common issues we come across is how spread out investment accounts are. We may have a brokerage account here, an IRA there and, very often, an old 401(K) or two still sitting in a previous employer’s plan. There are plenty of reasons why a 401(K) may be left behind with a prior employer – it could have gotten lost in the shuffle of beginning a new job, it may have just seemed like too much of a hassle to move the plan, or perhaps you took the time to roll the plan into an IRA but your employer made subsequent contributions you didn’t know about. These accounts, affectionately referred to as “orphans,” are becoming more and more common given the increasing frequency of job-hopping, especially among Millennials. So, who do these orphan accounts belong to and more importantly, what can be done about them?