President Obama’s 2015 State of the Union Address: What it could mean for your estate plan

In the State of the Union Address, the President outlined many policy stances that have the potential, if implemented, to affect your estate plans. The President’s goals to offer social programs, benefits and tax incentives for those in the middle class and below will undoubtedly require additional revenue if carried out.

The President reportedly seeks to find some of the necessary funding through changes to many long-standing estate-planning principles. These changes, if implemented, will affect how wealth would be transferred at death.

Of particular note, the White House has proposed to end the at-death step-up in tax basis in appreciated assets and instead implement a tax-as-if-sold approach at death. This could lead to significant income taxes generated at death, regardless of whether beneficiaries sell assets. Consequently, this framework could prompt an increased need for life insurance to cover the costs of these taxes to avoid asset liquidation. Further, there’d be an even greater incentive and tax advantage to putting assets that are likely to heavily appreciate in value into an irrevocable trust for children or grandchildren.

There are also rumors that the President would like to stop tax-free growth in 529 plans for future contributions. Earnings one has in a 529 plan account can come out tax-free for educational purposes under current law. However, if this tax policy changes to reflect the President’s anticipated proposal, earnings on future contributions made to a 529 account will be taxed when they come out. If this happens, one might be better served to continue to hold contributions and make later gifts using the existing gift-tax exemption for qualified tuition-payments.

Count on us to stay on top of any changes that could affect how you approach your estate plans. If you have questions about your planning opportunities, please contact us.