It is a sad fact that when you are a legal, tax and financial junkie, a highlight of the year is January when we have a chance to reflect on last year’s financial, tax and legal developments and cull out the real winners. Some of the case findings and new laws of 2017 are great and will benefit most while others appear to be just common sense — although common sense doesn’t seem to be that common anymore, right? Here are some of my personal favorites from 2017:
In the area of finance and investing, parents and grandparents often set up 529 Savings Plans for their (hopefully) college bound children and grandchildren. The funds grow in a tax advantaged investment account while the child matriculates and, when the now college student withdraws funds to use for college expenses, the tax protection continues. The tax bill passed in late December expanded the 529 Plan rules to allow holders of the plans to withdraw up to $10,000 per year for tuition at elementary and secondary public, private and religious schools. This seems like a win-win.
Divorcees got a mixed deal: If paying alimony, you may have derived some satisfaction in knowing that your ex-spouse was required to claim such alimony as income and pay the appropriate tax. This is no longer. Alimony payments are no longer a tax deductible item for the payer and the ex-spouse no longer needs to claim the payments as income.
If the trust agreement in your estate plan includes an old A-B split clause for tax planning — it is time to review and revise. The estate tax exemption is up over $11 million per person which means a married couple can pass over $22 million estate tax free. The old plans may have language that causes too much in assets to flow into one trust and really needs to be reviewed. I am sure this will have many of us rushing to our lawyer’s office to make changes to our estate plans!
If you have an estate plan in place, no doubt you understand the voluminous documents completely, right? Well, maybe not. It is not uncommon for a client to come into my office, plop a 6-inch pile of papers on the table and say, “According to my attorney, this is my estate plan. I haven’t a clue as to what it does.” We may want to become more knowledgeable about our plans. In a 2017 legal case titled Yale v. Brown, a couple divorced and, on learning that their attorney had converted the wife’s separate property into community property by having her sign deeds to this effect, the wife sued the attorney for not making it clear to her that the documents, in fact, made her separate property fair game in the divorce. The court found that she was at “comparative fault,” basically saying that she should have known what she was signing. Ouch!
Many of the new tax laws are scheduled to sunset in 2025 or, of course, until a new congress changes things. Review things with your attorney, tax preparer and financial advisor because there are both opportunities and pitfalls in the developments. For us legal, tax and financial nerds, the changes present an opportunity to learn new tricks of the trade and keep us on our toes!
Liza Horvath has over 30 years’ experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. Questions? Email liza@montereytrust.com or call (831) 646-5262.