WARNING: Earnings Season is Here! & An End to the Estate Tax is Near!

WARNING: Earnings Season is Here!  We are entering the first peak week of earnings season, with about 20% of the S&P 500 reporting third quarter 2016 earnings this week.  We expect this week’s results and guidance to go a long way toward determining the stock market’s near term direction.  In the meantime, expect some volatility (and a few surprises), but stay focused on the long term.  Call us with any questions.

An End to the Estate Tax is Near!

Earlier this month, the New Jersey Legislature announced its approval of a tax package that includes important tax cuts.  The most significant of these cuts is the end to the estate tax.  In 2018, the estate tax will be completely eliminated.

Currently, in New Jersey, estates worth more than $675,000 are taxed regardless of who they are bequeathed to, even if it’s a child or grandchild.  Estates worth $675,000 or less are exempt of estate tax, but that exemption limit will increase to $2million on January 1, 2017, followed by the elimination of estate tax entirely on January 1, 2018.  The repeal of the estate tax will mean that you can direct your estate to your child or grandchild tax free.  Keep in mind, the inheritance tax (a tax on inheritances to non-lineal descendants – those other than children or grandchildren), will remain in effect.

Current law also provides for a spouse who dies to leave property of unlimited value to the surviving spouse without incurring any estate tax.  The purpose of this is to shield assets that will benefit and support the surviving spouse from estate tax.  The assets can be distributed either by a direct transfer to the surviving spouse or by an indirect transfer to a qualifying trust for the benefit of the surviving spouse.  Regardless of whether the distribution is to the surviving spouse or in trust for the surviving spouse’s benefit, the marital deduction is a significant estate tax avoidance tool for married couples.

These tax changes also include a five-fold increase in the income tax break for retirees. Right now, married couples filing jointly can get out of paying any state income tax for their first $20,000 in retirement income.  The limit for a married couple filing jointly will jump from $20,000 to $40,000 in 2017, to $60,000 in 2018, to $80,000 in 2019 and $100,000 in 2020. For a married person filing separately, it will gradually increase from $10,000 to $50,000, and for a individual filing as a single taxpayer, from $15,000 to $75,000.

So, what does the 2018 estate tax repeal mean for you?  Many people have already moved out of state to avoid the estate tax and preserve the inheritance to their children.  Sadly, that move was untimely and may have been a hasty decision.  For instance, if you moved to Pennsylvania, where the estate tax is fixed at 4.5%, you will be worse off once the repeal takes effect in 2018.  But, for those who moved to other states like Wyoming, Florida, New Hampshire, and Nevada, those states have no estate tax, so the move may not have been in vain.

Those of you who are still living in New Jersey may be wondering what you should do now.  The answer is that your estate plan may currently require distributions to trusts in order to shelter your estate from New Jersey tax.  For this reason, you should review your estate planning with a financial advisor and with an attorney to find out if your current plans have adequate flexibility.

If you would like to discuss your estate planning or have any other questions, please do not hesitate to call our office.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through CWM, LLC a Registered Investment Advisor. LPL Financial is under separate ownership from any other named entity.

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