Whether you plan on retiring in New Jersey or another state, it is important to consider how taxes will impact your retirement and estate planning goals. At E.A. Goodman Law, we work with our clients to minimize their tax burdens now and in the future, so they can preserve their legacy and provide for their loved ones.
Who Should Be Worried About Taxes?
While most individuals are aware that tax planning is important, the people that should be most worried are those whose cash flow during retirement will be taxed, high asset individuals, and people who own their own businesses, many of whom will be paying income taxes or capital gains taxes on their retirement income. In addition, the high property values in New Jersey means that many people may be subject to estate taxes. At E.A. Goodman Law, we can help design strategies to reduce your tax obligations and preserve your estate assets.
Advanced Tax Planning Strategies
We are keenly aware that every family is unique, with varying finances and different goals, which is why we customize estate plans to suit which each client’s unique needs. That being said, many of our clients have benefitted from the following tax planning strategies.
Lifetime Transfers aka Gifts
One of the easiest ways to pass assets to your family members tax-free is by gifting to your loved ones while you are still alive. Currently, you can give up to $15,000 per person to as many people as you would like each year without incurring a gift tax. If you are married, your spouse can do the same, meaning you can transfer $30,000 to someone with no tax implications for you or them.
You can also pay medical and educational bills on someone else’s behalf without cutting into the $15,000 per year gift tax exclusion. So, if your grandchildren are in college, you can pay their tuition directly and then gift them money to cover room and board and books free of income taxes. In these situations, we often recommend creating trusts that benefit these individuals rather than gifting them directly.
Take Advantage of Life Insurance Trusts
Many people have life insurance, but few people think about the tax implications. While the beneficiaries of an insurance plan do not have to pay a tax on the proceeds of the plan, the owner of the plan will have to. Life insurance proceeds are included in the total value of your estate which could subsequently subject your assets to estate taxes. By creating an irrevocable life insurance trust, the trust takes ownership of the policy and the proceeds will not be subject to income or estate taxes. You obviously must fund the trust and pay the applicable taxes and fees while you are alive, but the hassle of doing so can save your estate a lot of money in the future.
If you already own life insurance, you can transfer the policy to the trust. Time is of the essence, however, because transfers within three years of death are voided and the proceeds are pulled back into the estate and subject to taxation.
Grantor Retained Annuity Trust
While interest rates are low, you might want to consider setting up a grantor retained annuity trust (GRAT). A GRAT is an irrevocable trust that provides the grantor — the person who set it up and funded it — with an annuity for a set number of years. At the end of the trust’s life, the remaining assets pass to the trust’s designated beneficiary without incurring a gift tax. This can be a great way to pass on assets you predict will be worth significantly more at a future date.
These tactics are only a few of the tax planning strategies that you can avail yourself of by working with E.A. Goodman Law There are many more sophisticated techniques that can be used to accomplish your estate planning and retirement goals.
Keeping Up With Changes in the Tax Code
The Tax Cuts and Jobs Act of 2017 is the most significant change to the federal tax code since The Tax Reform Act of 1986. Although the long-term impact of the new law is unclear, we are encouraging everyone to update their estate plans if they were drafted before the new law went into effect. We also suggest scheduling a maintenance meeting every three to five years since the new law is indexed to inflation based on a “chained” consumer price index and because people’s families and priorities change over the years.
Morris & Bergen County Tax Planning Attorney
We all intend that our hard work will translate into a better life for our children and grandchildren, and a decent retirement for ourselves. But without careful tax planning, much of one’s wealth may be subject to significant tax consequences. . Now is the time to take action to ensure you and your loved ones can hold on to as much of the wealth you have generated as you deserve. E.A. Goodman Law is committed to helping our clients plan for tomorrow. Call our office today or complete the convenient contact form on our website.