How the For the 99.5 Percent Act Should Get All of Us to Think About Our Estate Planning

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How the For the 99.5 Percent Act Should Get All of Us to Think About Our Estate Planning

On March 25th, Senator Sanders and Senator Whitehouse presented in the Senate Budget Committee an initial draft of the “For the 99.5 Percent Act” which will have a significant impact on estate planning going forward. There are still a lot of specifics to be determined through the political process but understanding the blueprint of the Act is crucial to determining what actions to consider in 2021 before the 2022 effective date of any new estate tax legislation.

Federal Estate Tax Exemption Amount Adjustment:

Currently, the federal estate tax exemption amount is $11,700,000 per person or $23,400,000 per married couple and is adjusted each year for inflation. The proposed federal estate tax exemption would be reduced to $3,500,000 per person or $7,000,000 per married couple adjusted each year for inflation. Policy experts in Washington DC think it is more likely that the exemption will drop by 50% to $5,850,000 with any unused federal estate tax exemption remaining portable from the deceased spouse to the surviving spouse.

Federal Gift and Estate Tax Rates:

The proposed rates under the proposed Act are 45% between $3,500,000 and $10,000,000, 50% from $10,000,000 to $50,000,000, 55% from $50,000,000 to $1,000,000,000 and 65% on any amount above $1,000,000,000.

Federal Gift Tax Exemption Amount Adjustment:

Since 2011, the federal gift tax exemption has been unified with the federal estate tax exemption. The proposed Act would reduce the federal gift tax exemption to $1,000,000. Although policy experts believe that it is likely that the gift tax exemption will remain unified with the federal estate tax exemption, this development is something to watch closely in the proposed legislation.

Annual Exclusion Gift Adjustment:

The proposed Act reduces the annual exclusion from $15,000 per year (adjusted for inflation) to $10,000 per year (to be adjusted for inflation) and reduces the exemption to all restricted gifts in a year to $20,000 per year such as gifts to trusts or other gifts with limitations.

Limitations on Dynasty Trusts:

Multi-generation trusts created after the effective date of the proposed Act (currently, that date would be January 1, 2022, if legislation is passed in 2021) would only be allowed to last fifty years. Pre-existing trusts would have to be terminated fifty years after the enactment of the act.

Limitations on Irrevocable Trusts for Estate Planning Purposes that Qualify for Step up in Basis Treatment:

The proposed Act is seeking to eliminate the opportunity of creating the power to have a step-up in basis on an irrevocable trust for a beneficiary which means that there would be significant capital gain exposure on long-term trust accounts.

Estate Planning Action Steps

  • Make annual exclusion gifts to the beneficiaries of your estate if you have the means to do so. If outright gifts will not be effective, consider gifts in trust that can be controlled by a trusted family member.
  • Consider making credit-consuming gifts above the annual exclusion. Large gifts made now above the future exemption will not be clawed back (taxed again at your death) even if the federal estate tax exemption at the time of your death is less than your lifetime use of the exemption.
  • Develop a flexible estate plan in 2021 without mandatory trusts that have a proactive giving bent to maximize current tax benefits while they still exist.
  • Consider second-to-die life insurance with long-term trusts for family members (if appropriate) to maximize long-term tax-free money to the family while these opportunities still exist.
  • With the additional likelihood of higher income tax rates in 2022 and beyond for some taxpayers, consider Roth IRA conversions and other means to accelerate income in 2021.
  • Have a discussion with your Lange Legal Group attorney in 2021 to put a plan in place now that will maximize your protection against these pending law changes.

  • Although it is likely that the final federal estate tax act that Congress passes will be different than the “For the 99.5 Percent Act”, it is critical not to bury your head in the sand with regard to your estate plan and to act this year. Federal estate tax changes will most likely be in effect for 2022 so now is the time to contact us to revisit or to develop your estate plan and wealth transfer plan.

    Fortunately, there is light at the end of the tunnel for COVID-19 but the light in the tunnel may be dimming for proactive estate planning. We look forward to hearing from you.

    For more information, send an email to Matt by clicking the button below.

    Contact Matt Schwartz, Attorney at the Lange Financial Group for Estate Planning needs including Wills.

    Optimizing Your Estate Plan Now in the Event of a Biden Presidency and a Democratic Congress

    Optimizing Your Estate Plan Now in the Event of a Biden Presidency and a Democratic Congress

    by: Matt Schwartz, Esq.

    Image featured in a blog post by Matt Schwartz, Esq on PayTaxesLater.comAs the 2020 election approaches, a frequent question that I receive as an estate planner is what should I be doing now to maximize what I leave to my family as an inheritance.

    One can reasonably assume that if Trump is reelected or the Senate remains Republican that there will unlikely be any sizable tax increases over the next four years.  However, what if Biden is elected and both the House and Senate are Democratic?  In that scenario, it is likely that the estate tax exemption returns to $5,000,000 adjusted for inflation per person and that the step-up in basis rules on appreciated assets will be repealed with immediate recognition of capital gain at the time of the taxpayer’s passing.  In addition, the maximum personal income tax rate will rise to 39.6% on income over $400,000 with capital gains being subject to ordinary income tax rates of 39.6% on income (including the capital gain) over $1,000,000.

    What can I do now to be safe no matter what happens in the election?

    Consider Recognizing Some Capital Gains Now: Over the years many people have ignored sound economic theory regarding diversification of your financial portfolio because of the extremely adverse tax consequences of capital gain recognition when such capital gain could be forgiven at the time of death.  Perhaps this thinking needs to be reevaluated.  With today’s current low income and capital gains tax rates, perhaps it makes sense to recognize $50,000 to $100,000 of unrealized appreciation through a capital gain if the federal income tax is 15% (or 20% depending on your other income).  For some families, it may make sense to recognize significantly more at 20% if you are looking at a future prospect of having some of this income be recognized at 39.6% at the time of death.  The prospect of recognition of the capital gains tax on the transfer of appreciated assets (especially less liquid appreciated assets such as business interests and commercial real estate) when most of the other assets to pay the tax are retirement assets could be draconian.

    Consider Second-to-Die Life Insurance: In recent years, I have been less of a fan of second-to-die life insurance based on the high federal estate tax exemption.  However, life insurance (probably ideal to get before 70 if you are a couple) could be a great asset (income tax-free) to cover the tax that will be due on the transfer of appreciated assets at death where the primary assets remaining to pay this tax in many estates could be retirement assets that are subject to income tax upon withdrawal. 

    Consider Transferring Some Appreciated Assets to Lower Income Family Members Now: Traditionally, we have recommended transferring appreciated assets to individuals who are in low tax brackets so that they can recognize the gain with little or no tax consequence.  In addition, to continue transferring a modest amount of appreciated assets to lower-income family members to keep their income down on the recognition of the capital gain, you may want to consider transferring more to them if they can recognize it at current favorable 15%-20% rates compared to having to recognize it at the time of your death at a possible 39.6% rate.

    Consider Transferring Appreciated Assets to Charity: It is always a good idea to fund a gift with highly appreciated assets as long as the gift is large enough to be deducted as an itemized deduction.  It will make even more sense to transfer highly appreciated assets to charity if Biden becomes President and both houses of Congress are Democratic.

    Consider Roth IRA Conversions Particularly if you are currently Married: We are seeing more and more widows and widowers in the 32% bracket or higher so considering Roth IRA conversions while you are still married to maximize the 24% bracket is a good planning strategy.

    The first of these four ideas is a relatively new idea for consideration in light of the understanding of many estate planners including myself that the step-up in basis was a permanent part of the tax law.  So, I would wait until after we know the outcome of the election to act too aggressively on recognizing capital gainsHowever, all of the other ideas are good tax, retirement, and estate planning ideas to consider now irrespective of the outcome of the election and I would act on those sooner than later if they are a good fit for your situation.

    Please do not hesitate to send me an email to or give me a call at (412) 521-2732 if you are interested in having a further discussion on these topics or any other retirement and estate planning topics.


    What Happens If You Don’t Have A Will?

    New Blog by Lead Estate Attorney Matt Schwartz of the Lange Financial Group

    Other than getting a tooth pulled, most people would tell you that there are few things that are as unpleasant to them as talking about their future death and wills. Death is an emotional and difficult topic for many people because it forces them to assess their legacy and their life purpose. So what happens if you don’t have a will?

    How Are My Assets Distributed at My Death?

    To help clients get over their discomfort of discussing their mortality, I explain to clients what will happen if they do not have a Will. Certain assets such as retirement accounts, life insurance policies and joint accounts pass to the successor owner irrespective of whether you have a Will. All other assets that do not have a joint owner or a beneficiary designation would be distributed in accordance with Pennsylvania intestacy law if you pass away without a Will. Examples of such assets are individually owned real estate and individual financial accounts without beneficiary designations.

    Who Controls the Distribution of my Assets? Advice from an Estate Attorney

    If you are married, it is quite possible that all of your assets are either jointly owned with your spouse or will pass to your spouse by beneficiary designation. If so, it will not be necessary to use a Will to transfer any assets at the first spouse’s death because all of the assets will pass to the surviving spouse independent of any Will. However, if assets are individually owned without a beneficiary designation, then the distribution of those assets will not be permitted until an administrator is appointed for the estate. Although the initial choice for administrator would be the spouse, how will the children decide who should be administrator if your spouse predeceases you or does not have capacity to serve as administrator? Will a majority of the children agree on one of them to serve as administrator?

    Who Receives My Assets if I Don’t Have a Will?

    Finally, how are individually owned assets without a beneficiary designation distributed if you do not have a Will? Contrary to what most people think, the individually owned assets will be split at the first spouse’s death between the spouse and the children. The surviving spouse is already upset enough about losing their spouse. Finding out that they might not inherit all of the assets of their spouse (this result can be common with families that own real estate or closely held businesses) only adds insult to injury for these surviving spouses.

    In future blog articles, we will focus on positive benefits of having a Will. Please do not hesitate to send me an email or give me a call at 412-521-2732 x211 if you would like to have a discussion to revisit your current Will or to develop an initial Will.

    Contact Matt Schwartz, Attorney at the Lange Financial Group for Estate Planning needs including Wills.

    Jim Nabors Saved $4.8 Million in Taxes By Marrying His Husband

    How Jim Nabors saved $4.8 Million in taxes by marrying his husband. Courtesy of


    Jim Nabors: Actor, Singer, and Comedian

    On November 30, 2017, Jim Nabors, perhaps most famous for his role as Gomer Pyle, died at the age of 87.  Jim is survived by his husband Stan Cadwallader, whom he married in 2013. Their marriage came one month after same-sex marriages became legal in Washington State.

    It is quite eye-opening to look at the tax consequences of their decision to get married; Mr. Nabors died with a $13M estate.  The terms of his will are not public, but for the sake of argument let’s assume he left his estate to his husband. Because of the marriage, no Federal or Hawaiian estate or inheritance taxes are due at death because of the unlimited marital deduction.

    Smart Estate Planning

    If Jim and Stan had remained unmarried partners the payout to the Government would have been astronomical. A $3,000,000 payment in federal estate taxes alone is bad enough. A payment of over $1,800,000 in Hawaiian inheritance taxes would add a total of $4,800,000 in total taxes. These numbers don’t include the income taxes that will be saved because of the longer “stretch” a spouse receives on an inherited IRA or retirement plan.

    The moral of the story is that for many life-long partners, gay or straight: Get Married for the Money.  Obviously the decision to marry hinges on more than whether marriage is a financially strategic move. But if you are simply avoiding the formalities, it might make sense to think about the long-term tax consequences on your financial security—for both you and your partner. Marriage is usually a big plus for purposes of Social Security, especially if one partner has a much stronger earnings record than the other partner.

    More Information Is Always Available

    For more information visit schedule an appointment with Jim Lange, please call his office at 412-521-2732. You can always contact Jim at

    James Lange, CPA/Attorney of Lange Financial Group, LLC, is the author of several books on retirement and estate planning, including Live Gay, Retire Rich.  His books on retirement strategies have been endorsed by Charles Schwab, Larry King, Jane Bryant Quinn, Ed Slott, and many more.  He hosts a weekly financial show on KQV News Radio in Pittsburgh. PA.


    The Incredible Tax Advantage of Young Beneficiaries

    Let’s Talk About Your Kids:
    The Advantage of Estate Planning with Young Beneficiaries

    The Incredible Tax Advantage of Young Beneficiaries

    Let’s talk about your beneficiaries, your kids and grand kids.

    In the second video in this series, we learned that estate planning that leaves retirement assets directly to children and grandchildren offers extraordinary tax advantages to your family.  The basic premise being that a young beneficiary has a long life-expectancy, and sustaining money in the tax deferred environment for an extended period allows for the most growth. At least this is how things work under the current law.

    I think we can agree that, in drafting estate planning documents, the primary concern for most couples is to provide for the surviving spouse. As we have discussed, transferring assets to a spouse is a fairly straightforward process and does have some tax advantages. Then, they hope that when they are both gone, there will be something left for their kids, and then for their grandchildren.  But, I am suggesting that, depending on family circumstances, it might be smart to leave money to kids or grandkids at the first death.

    Let’s say that after you die, your spouse is in good health and has more money than he or she will ever need.  Under those circumstances, you have met our first criteria for an estate plan:  providing for the surviving spouse.  In this case, leaving at least a portion of your IRA to your children is perhaps a viable and tax-savvy option.  With their longer life expectancy, they will have lower required minimum distributions which means more of your money will continue to grow tax-deferred.  Flexible estate planning at its finest! It’s a winning scenario, especially if you look at the family as a whole with the idea of establishing a legacy.

    If we take it one step further with your beneficiaries.

    It’s even better, tax-wise, to name your grandchildren.  Imagine the advantages of minimizing tax-free distributions from an inherited Roth account over a long lifetime! If you scroll up to video two in the series, you can watch me run the numbers for just that scenario.  It’s a game-changing strategy.

    We cannot over-stress, however, that naming minor children or grandchildren as beneficiaries will also require some additional estate planning to protect them from themselves—no Ferrari at 21 for you my grandson—and, potentially, creditors.  We recommend that all minors’ shares are held in well-drafted trusts.  Additionally, it is critical that the trust meets five specific conditions to qualify as a designated beneficiary of an IRA or a Roth IRA (you can find reference to the five conditions in my book, Retire Secure! on Page 307, and you can download a copy of the book at Under current law, a well-drafted trust will allow them to stretch an inherited IRA or Roth IRA over their lifetime. If the trust doesn’t meet all five of the conditions, then the trust will not qualify as a beneficiary and income taxes will be accelerated. Without attention to the details, it could go from an estate planning dream to a nightmare.

    So, let’s pull it all together.

    Even if you have specific bequests that you want to see honored—a gift to a charity or a cause or a family friend—I suspect that it is still safe to say that your primary beneficiaries will be your surviving spouse, your children, and your grandchildren.  That being the case, stay tuned to learn why Lange’s Cascading Beneficiary Plan is probably the best estate planning solution for you.

    Until next time!



    P.S. If you want to do a little advanced study on this topic before the next post and video, go to

    Beyond “I Love You” Wills: Tax Advantaged Estate Planning With Lange’s Cascading Beneficiary Plan

    Estate Planning Goals:
    What Do Most Families Want?

    What do most couples want from estate planning and their Wills?

    Welcome back for the fourth video blog post in my series on Lange’s Cascading Beneficiary Plan: the best estate plan for married couples.

    So, let’s talk a minute about estate planning goals in general and forget about taxes.  What do most couples want from estate planning?  They want to be sure that, no matter what, the surviving spouse will be safe and secure.  If they have kids and grandkids, they want to take care of them too.  This typically leads to what I call an I Love You will.  And truly, it’s a great place to start.  Most I Love You wills are simple and to the point:  Husband leaves everything to his wife.  Wife leaves everything to her husband.  Once they both die, the remainder goes to their children in equal shares.  And if, for some reason one or more of the children predecease the parents, that child’s share would go to his or her own children—hopefully in well-drafted trusts.  As I said, I am a huge fan of I Love You wills.  But, returning to the topic of taxes…we can optimize estate planning when we start thinking of the tax consequences for individual family members, and how that affects the family as a whole.

    What’s great about the I Love You Wills

    Okay, so what is great about the I Love You wills that name the spouse as the primary beneficiary and then the children equally?

    1. It provides for the surviving spouse. As such, it meets our primary objective.
    2. When you direct your assets to your spouse at death, there is no income tax on the transfer of your IRA or other retirement plans. With a tax-deferred plan, your spouse will continue taking required minimum distributions (RMD).  If a Roth IRA passes to the surviving spouse, there are no RMDs, and it can continue growing tax-free for the rest of his or her life.
    3. With the death of the second spouse, what’s left goes to the children.

    That covers the basics.

    What can be improved from with I Love You Wills?

    Now, let’s look at what we might improve from the basic I Love You estate planning.  If you remember in the second video of this series, we looked at the nitty-gritty of what happens to your IRA after death.  Assuming the IRA distribution rules currently in place, you learned that a child’s required minimum distribution of an inherited IRA would be much lower than the required minimum distribution of the IRA for the spouse.  So, if financial circumstances permit, passing the IRA to a child defers taxes for a much longer period.  And, if we are looking the big tax-picture estate planning for the whole family, that is an advantageous tax strategy.  The tax advantage only improves if a grandchild is the beneficiary.  We can implement this tax-advantaged strategy if the disclaimers associated with Lange’s Cascading Beneficiary Plan are in place.

    The critical component with this type of estate planning is flexibility.  Having options that can maximize the tax benefits to the family based on the financial/life circumstances at the time of the first death is both comforting and smart.   Lange’s Cascading Beneficiary Plan takes all the benefits of the I Love You will and adds flexibility and potentially enormous tax advantages.

    In our next video blog, we will look at some of the best ways to plan in the face of uncertainty.

    See you soon!


    P.S. If you want to do a little advanced study on this topic before the next post and video, go to

    When Is Flexible Estate Planning with Lange’s Cascading Beneficiary Plan the Best Solution?

    Lange’s Cascading Beneficiary Plan:
    When is Flexible Estate Planning the Best Solution?

    Hi all!  As we edge closer to Halloween, I want to talk a bit more about something that TRULY TERRIFIES me: bad estate planning.  In our scary tale, the villain: Concrete Contract, is trying to trap your beneficiaries into decisions made today—decades prior to your death—based on information and circumstances that will likely be completely different when the time comes to put the estate plan into motion. The devil is in the details, and you don’t want the devil involved!

    Luckily, our flexible friend, Lange’s Cascading Beneficiary Plan comes to the rescue! He provides the peace of mind that your beneficiaries will be able to make the best decisions with the facts at hand when the time comes.  Once again, flexible estate planning protects the innocent and saves the day!

    Ok… Ok… I know that was a little silly.  But it is still true. Since the mid-1990s, Lange’s Cascading Beneficiary Plan has been saving beneficiaries from being trapped by decisions made decades in the past when an estate plan was drafted. In my opinion, there is no better option for your estate planning, particularly if your family is not a blended family—more traditional, so to speak.  In the accompanying video, I am going to explain my reasons for using this flexible estate plan and describe how it can provide optimal solutions under many circumstances.

    As I have touched on before, the biggest problem in estate planning is that we don’t know what is going to happen in the future.  We don’t know when we are going to die.  We don’t know how much money we’re going to have.  We can’t anticipate the future needs of our surviving spouse.  We can’t know the needs of the children and grandchildren—or even whether there will be grandchildren.  We don’t know what the tax laws are going to be.  In point-of-fact, we don’t know what the tax laws are going to be next year much less a couple of decades from now!

    A previous blog and video series addressed possible changes in the tax laws regarding retirement plans… and I said then, what I will say now.  The best thing that you can do to protect your family from those changes—not knowing what the future holds—is to make sure you have a flexible estate plan.  If we lose the ability to stretch an IRA, if inherited IRAs are taxed at an accelerated rate, if tax rates become more unfavorable for your family, then they will need flexibility to make financially sound decisions. Managing the tax impact on your legacy is critical.

    What do you need to have Lange’s Cascading Beneficiary Plan work for your family?  Trust.  For this plan to work well, you absolutely must trust your spouse. This is really important, because after you die, your spouse will have the power to make a lot of critical decisions—hopefully in conjunction with other trusted family members and a trusted advisor, and armed with your wishes too.

    Estate planning with cascading beneficiaries is not a new concept, but I put my twist on it making it work particularly well for IRA and retirement plan owners with traditional families. Then, I started calling it Lange’s Cascading Beneficiary Plan.  After decades of use, I’ve seen this plan serve my clients very well.

    The video goes over the details of how this plan should be set up and how to name beneficiaries. I think it is really critical to get this right, and I want to make sure all my readers do get it right. Flexible estate planning has never been more critical as we stand in the shadow of the Death of the Stretch IRA. Good planning could save your family a lot of worry and a lot of money.

    Stop back soon for more on Lange’s Cascading Beneficiary Plan.


    P.S. If you want to do a little advanced study on this topic before the next post and video, go to

    Why Flexible Estate Planning Matters, Especially for IRA and Retirement Plan Owners

    Why Do We Need Flexible Estate Planning?

    Welcome back, Friends! This is the second post in my new video series on Lange’s Cascading Beneficiary Plan—the best estate plan for traditionally married couples, or what I like to call “leave it to beaver couples,” in contrast to blended families where more variables come into play for estate planning.

    Why do we need flexible estate planning? Why is it so valuable for IRA and retirement plan owners?  Well, to get there we must think about the unique tax features of IRAs and what happens to an IRA when you die…

    Most contributions to IRAs and retirement plans are tax deferred. We will ignore Roths for now. Their status as tax-deferred investments is valuable to you and to your heirs. Under the current law, you can take advantage of a great estate planning tool referred to as “the stretch IRA.” Stretching the IRA means keeping as much money as possible in the tax-deferred environment for as long as possible. We want to    allow as much of the principal in an inherited IRA to grow tax-deferred for as long as possible—currently a child or even a grandchild can stretch distributions from an inherited IRA over his or her lifetime. But, we are looking at a possible change in the laws regulating retirement plans that could really ruin that opportunity.  Having flexibility in your estate planning allows you to roll with the changes, and make good decisions under the new rules. But let’s take a little closer look at how the stretch works.

    Bob Smith is a married 69-year-old retiree with a million dollars in his IRA.  On April 1 of the year after he turns 70 ½, Bob must begin taking annual required minimum distributions (RMDs) from his retirement plan.  You see, the government has been letting Bob defer income taxes on his IRA contributions for many years.  But eventually, they want their share! RMDs are calculated using numbers found in IRS Publication 590. Publication 590 gives us a divisor that is based on the joint life expectancy of Bob and someone who is 10 years younger than Bob.  We see that at age 69, Publication 590 says that Bob’s divisor is 27.4 (very nearly 4%).  So, when you do the math, this first year Bob must take out close to $38,000.  So, for the rest of his life Publication 590 is used to determine how much of a distribution Bob is required to take annually.

    Now, when Bob dies, the ownership of that IRA is transferred to his wife, Jane Smith. Conveniently in this example, she is the same age as Bob so she begins taking her required minimum distributions exactly as Bob did.  As time goes on, her life expectancy decreases, and the distributions get larger. When Jane dies, however, what’s left in the IRA will go to their children as an Inherited IRA. This is when things can get interesting.

    Let’s assume for discussions sake that their child, Sally, is now in her sixties.  Sally will be required to take minimum distributions as well. The difference is that her distributions will be calculated based on her life expectancy. Which, obviously, is much longer than her mother’s was at the end.  So, the dollar value of the distributions drops, and the bulk of the account continues to grow tax deferred for a long time—and Sally benefits from the power of compounding.

    You all know that I am a big fan of paying taxes later.  So, if you have done flexible estate planning, like Lange’s Cascading Beneficiary Plan, and if you can afford it, here is an even more dramatic possibility. Since the flexible estate plan allows Sally to disclaim the Inherited IRA (she doesn’t need the money), she can pass it directly to her son, Phillip (her parents’ grandchild). Now, Phillip is in his thirties and his required minimum distribution is even lower.  Think of how long that deferral can run!

    And, if you REALLY want to think of something incredible, imagine that this retirement plan is a Roth rather than a traditional IRA.  Now, all those distributions are tax free and we are really talking about building generational wealth.  The video with this post goes into detail about how IRAs are treated after death, and provides examples using specialized software that show how family wealth can grow using inherited IRAs and Roth IRAs—with the caveat is that this is how things work under the current law.

    Unfortunately, we still believe that the death of the stretch IRA will pass in 2017 or 2018.  What is going to happen, subject to exception, is that the non-spouse beneficiary will no longer be permitted to stretch distributions of an Inherited IRAs over his or her lifetime. Any amount over $450,000 will be required to be disbursed within 5 years of the IRA owners’ death. Potentially devastating! There are some work-arounds that we have devised in anticipation of the law changing but this is precisely why flexible estate planning is so critical. Enjoy the video.

    See you next week!


    P.S. If you want to do a little advanced study on this topic before the next post and video, go to

    Structuring Your Estate Plan Around President Trump’s Proposed Tax Reform

    What will the impact of President Trump’s tax reform mean for you?

    President Trumps Tax Reform Proposal and How it Might Affect You James Lange

    You can hardly open a newspaper these days without seeing commentary about President Trump and the Republican Congress.  Whatever political side you’re on is irrelevant; the important thing is to stay on top of what the government is doing with respects to tax reform.  Ultimately, it just might mean more money for your family.

    Will President Trump Cut Taxes?

    What do we know is going to happen?  Since they were part of President Trump’s campaign platform, decreases in personal income tax rates are likely to be a part of a tax reform proposal. Readers who are old enough to remember President Reagan might recall that, during his first term, he implemented new economic policies that were referred to as Reaganomics.  One of the largest cornerstones of Reaganomics was the Economic Recovery Tax Act of 1981.  This Act lowered the top marginal personal income tax bracket by a whopping 20 percent, from 70 percent to 50 percent, and the lowest tax bracket from 14 percent to 11 percent.  Sounds good, right?  To the unsuspecting citizen, perhaps, but here’s the catch:  after the Act was passed and personal income tax rates decreased, the Treasury Department’s annual tax revenues did not suffer at all, as one might expect they would.  Tax revenues actually increased during Reagan’s two-term presidency – from 18.1 percent to 18.2 percent of the country’s Gross Domestic Product (GDP)!  And the reason that those revenues increased was because the Republican Congress quietly passed other laws that raised other types of taxes!  Uh, oh!

    The Effect of the Trump Tax Plan

    The non-partisan Tax Policy Center expects that there will be $7 trillion added to the federal deficit over the next decade if President Trump’s plan to restructure the personal income tax brackets is made in to law.  With the country’s debt amounting to over 104 percent of our Gross Domestic Product in 2015, a reduction in the personal income tax rates could have a far-reaching and devastating effect unless they get money from somewhere else.  I’ve been talking a lot about the Death of the Stretch IRA, and this is exactly why I believe that it is imminent.  If the President’s promise to change the personal income tax brackets is made into law and the unsuspecting voters are appeased, he and Congress will be looking for new ways to minimize its effects on the country’s cash flow.  With an estimated $25 trillion being held in previously untaxed retirement plans, it seems likely to me that one of the first things they will consider is accelerating the tax bill that will be owed by individuals who inherit that money.  After all, they still have more money than they did before they received their inheritance, right?  Why complain, even if it is less than they could have had?

    Tax Reform and the Death of the Stretch IRA

    I’ve said it before and I’ll say it again – I believe that the Death of the Stretch IRA legislation will be included as part of a major tax reform bill because it provides a way to pay for the personal income tax cuts that our politicians have promised.  And while any personal income tax reform will receive intense coverage by the media, any included legislation that spells the Death of the Stretch IRA will probably be completely overshadowed by news of the latest celebrity wedding in Hollywood.    If you subscribe to this blog, though, you’ll be notified as soon as it happens, so that you can take whatever steps are appropriate for your own situation.

    Impact of Tax Reform

    Unfortunately, it’s unlikely that those personal income tax decreases will be permanent.  Historically, when one administration reduces taxes, the next administration does the reverse.  President Reagan’s eventual successor, George W. Bush, famously promised Americans “Read my lips, no new taxes!”, but was unable to keep his word because the Democratic-controlled Congress voted to raise them.  So what will the impact of a major tax reform mean for you?  Even if President Trump is successful in pushing a tax reform bill through Congress, they’re not likely to stay as low as what he has proposed.  Could this mean that Roth IRA conversions might suddenly make sense to far more people than in the past?  We’ll have to wait and see just how low these new tax brackets might go!  Stop back soon for more ramblings!


    For more information on this topic, please visit our Death of the Stretch IRA resource.


    P.S. Did you miss a video blog post? Here are the past video blog posts in this video series.

    Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?

    Are There Any Exceptions to the Death of the Stretch IRA Legislation?

    How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

    Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?

    What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

    How Does The New DOL Fiduciary Rule Affect You?

    Why is the Death of the Stretch IRA legislation likely to pass?

    The Exclusions for the Death of the Stretch IRA

    Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA

    Using Roth Conversions as a Possible Solution for Death of the Stretch IRA

    How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA

    How Flexible Estate Planning Can be a Solution for Death of the Stretch IRA

    President Trump’s Tax Reform Proposal and How it Might Affect You

    How Flexible Estate Planning Can Save Your Children Money

    Using Flexible Estate Planning as a Possible Solution for the Death of the Stretch IRA

    How Flexible Estate Planning Can Save Your Children Money

    The previous posts in this series discuss the proposed legislation that would spell the Death of the Stretch IRA, and offer some ideas that you might be able to incorporate into your own estate plan to reduce its devastating effects. This post will show you how flexible planning can minimize the damage that income taxes could do to your childrenís inheritances after the Death of the Stretch IRA.

    The $450,000 Exclusion, Use it or Lose it!

    I want to go into detail about something that I first mentioned in my post of February 28, 2017, which was the proposed $450,000 exclusion to the Death of the Stretch IRA legislation. The proposed legislation said that each IRA owner would be entitled to their own exclusion of $450,000. Regardless of how many retirement accounts you own, and how many beneficiaries you name on them, it is critical that you donít overlook the fundamental step of making sure that your exclusion can be used after your death. If you donít use it, you will lose it!

    Readers who have been around as long as I have may remember estate planning in the late 90ís, when the top federal estate tax rate was an outrageous 55% and only $600,000 of your estate could be protected from it. And in order to protect more of your assets from the IRS, attorneys had to draft elaborate trusts (often referred to as marital, or A/B trusts) which would allow each spouse to have a $600,000 exclusion of their own. That way, a total of $1.2 million of your familyís money could be exempted and would pass to your children without being subject to federal estate tax. Remember those days?

    Common Beneficiary Language Can Cause Your Heirs to Lose an Exclusion

    Well, now you have to think the same way about the $450,000 exclusion that is proposed in the Death of the Stretch IRA legislation. The proposal says that the change will apply only to the extent that an individualís aggregate account balances exceed the exclusion amount. But what do most people do when they fill out their beneficiary forms? They say, I want my spouse to have this money, and if my spouse dies before me, I want it to go to my children. Sound familiar? Well, suppose you have $450,000 in an IRA, and your spouse has $450,000 in an IRA. You die, your spouse rolls your IRA in to her own IRA, and now she has $900,000. In an earlier post, I told you that your spouse is an exempt beneficiary ñ so any money that you leave to her wouldnít have been subject to the $450,000 exclusion anyway. But suppose your spouse dies a week after you do. Since her IRA was worth $900,000 when she died, your children can only exclude $450,000. So half of her account could be sheltered under the old IRA rules, but the remainder would be subject to the proposed new IRA rules.

    A Better Plan – Use Both Exclusions

    A better plan would be to make sure that, if possible, you and your spouse can use both of your exclusions. For example, suppose you have $1 million in an IRA, and your spouse has $1 million in her own IRA. Both of you have estate planning documents that give your surviving spouse the right to disclaim to the next beneficiary in line. You die, and now your spouse has a decision to make. Sheís your beneficiary, and she can accept your IRA if she feels she needs the money. But suppose she doesnít need all of it? She could say, ìIíll be quite comfortable with only $550,000 of this, plus the $1 million from my own IRA.î In that case $450,000 of your IRA would go to the next beneficiary in line ñ your children. Since the amount that your spouse disclaims is within the exclusion amount, $450,000 of your IRA will go to your children and can be distributed according to the old rules. Then when your spouse dies, her entire IRA will pass to your children and they can exclude $450,000 of her IRA from the new rules too.

    Flexible Estate Planning is the Key

    Flexible estate planning allows your surviving spouse to decide who gets what after your death, and is the key to minimizing the harsh effects that the Death of the Stretch IRA legislation will bring if it is passed. Stop back soon for some more random thoughts!


    For more information on this topic, please visit our Death of the Stretch IRA resource.


    P.S. Did you miss a video blog post? Here are the past video blog posts in this video series.

    Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?

    Are There Any Exceptions to the Death of the Stretch IRA Legislation?

    How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

    Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?

    What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

    How Does The New DOL Fiduciary Rule Affect You?

    Why is the Death of the Stretch IRA legislation likely to pass?

    The Exclusions for the Death of the Stretch IRA

    Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA

    Using Roth Conversions as a Possible Solution for Death of the Stretch IRA

    How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA

    How Flexible Estate Planning Can be a Solution for Death of the Stretch IRA