On the Estate Tax Changes for Nurses

Nursing issues are not the only things this blog will cover, despite the general focus.  There are issues of general importance that occasionally will merit a post – and since I also practice estate planning (though I still want to practice estate planning primarily for nurses and other healthcare professionals!), I pay attention to estate planning issues, too.

As we approach the middle of the year and since Congress appears to be stuck in neutral regarding the imminent change back to the 2001 estate tax exemptions and rates, it is important to think about the implications and plan accordingly if your estate might be subject to the estate tax after the reinstatement.  The exemption (the portion of the estate exempted from estate taxes) will only $1 million, so there are plenty of nurses that may reach that level (especially those with physician and other professional spouses).  According to Forbes Magazine (article by Deborah Jacobs, link here), there are several strategies that may help protect your assets if you anticipate liability under the estate tax when it reverts to the 2001 levels:

  • Do not own life insurance in your own name.  Life insurance, while not included in the estate of the person who has passed away, is part of the taxable estate for estate tax purposes.  There are two methods to avoid inclusion in the taxable estate; either have an adult beneficiary own the policy or have an irrevocable life insurance trust own the policy (for minor beneficiaries), thus taking the life insurance out of the estate;
  • Pass on part of the estate now using the annual gift exclusion of $13,000 ($26,000 for married couples) or use the $1 million lifetime gift exclusion;
  • Fund a college savings plan, like the Texas Tomorrow Funds;
  • Certain items, such as tuition,  medical and dental expenses can be paid for anyone as long as the provider of services is paid directly and the money does not pass to the beneficiary.  This money does not implicate the lifetime gift tax exclusion; and
  • Convert a traditional IRA to a Roth IRA.  While the assets in the Roth IRA are included in the estate, paying the income taxes on the conversion up front rather than upon distribution takes the income taxes out of the estate and avoids the required minimum distributions if you are near 70 1/2.

All of these strategies are advanced tax planning strategies and should not be done without consulting an attorney and financial planning expert.  Contact Marc to schedule a Family Wealth Planning Session if you want to discuss these issues and other issues regarding planning your estate.

Marc

Note: The article also discusses bypass trusts, stating that the property needs to be owned individually rather than jointly.  However, I didn’t include this method on the list because 1) Texas is a community property state and has different rules pertaining to joint ownership of property – it is difficult to create separate property as contemplated by this article – and 2) this is a basic estate planning technique (use of a disclaimer trust) that should occur in most, if not all, wills.  If you don’t have a will, contact Marc to schedule a Family Wealth Planning Session to do foundational estate planning.

One Response to On the Estate Tax Changes for Nurses
  1. [...] Nursing issues are not the only things this blog will cover, despite the general focus.  There are issues of general importance that occasionally will merit a post – and since I also practice estate planning (though I still want to practice estate planning primarily for nurses and other healthcare professionals!), I pay attention to estate [...] Read more about: On the Estate Tax Changes for Nurses – Texas Nursing Law [...]