The Estate Planning List of To-Do Items
With the start of each new year, it is important for US Taxpayers to review their estate plan to make sure everything is in order. For taxpayers who do not yet have an estate plan, they will want to consider whether they want to create an estate plan in the new year as well. In general, trust and estate tax rules do not operate in a vacuum, and changes in some aspects of tax law can impact whether or not your prior estate plan is still valid — and in good order for your needs. Likewise, if you had any changes or anticipated changes that will impact your estate plan, you may want to consider some of these important estate planning to-do items in 2023 and beyond. Let’s take a brief look at the estate planning list of to-do items for the coming year.
Review Prior Year Estate Plan
The first thing of course is if you already have an estate plan in place then you will want to review that estate plan to make sure that everything is in order. For example, what year did you execute your estate plan and how have the laws changed since then? In a common scenario, your net worth and asset portfolio may have significantly changed from when you first created your estate plan. If 20 years have passed since you first started, you may have amassed significantly more wealth and have a more diverse asset base. Thus, your prior estate plan may not be conducive to your current assets and life changes.
New Child or Marriage
If you had a new child in the prior year or anticipate another major life change, then modifications to your estate plan may be in order. Alternatively for example, if you have entered into a new marriage but you have children from a prior marriage, your prior estate plan may not be suitable for your current needs. You may want to consider a Q-TIP trust to both take care of your current spouse in case something were to happen to you — but still preserve assets how are your children from your prior marriage.
Did You Acquire New Assets?
If you acquired new assets, you may need to update your trusts and estate plan to make sure it accounts for all the additional assets. For example, if you have different rental properties then depending on whether or not you have an S Corp., LLC, or a series LLC can impact what changes you may require for your estate plan. Likewise, if you have an irrevocable trust and are considering decanting the trust with new assets that is something to consider as well.
Disposal of Old Assets
Sometimes a person may create an estate plan in order to protect certain assets. For example, you may have created an estate plan that included an offshore asset protection trust or domestic asset protection trust because you were concerned about protecting one or more assets in the trust. It may be several years later and you are no longer concerned about protecting the specific asset — and therefore those prior trusts may no longer be necessary. This is especially true depending on what your annual fee is to administer the foreign or US protection trust.
If you have acquired foreign assets throughout your lifetime, you may need a much more robust estate plan. For example, if you secured foreign real estate overseas, then the country where the real property is located will presumably have its own set of laws involving how that piece of property is passed on after someone passes away. In general, real estate is considered unique and the laws of the country where the real estate is located will usually take precedence. It is important to create a global estate plan in this type of situation in conjunction with comity involving a specific country or countries.
Married a Foreign Spouse
If you are a US citizen who married a foreign spouse, then there are specific rules that may limit the transfer of assets. Moreover, if you are a non-resident who married another non-resident and you have significant US assets, the amount of exclusion allowed is significantly less in the amount of equation that is afforded to US residents and citizens. Especially if you have a high net worth of US assets, it is important to try to protect those assets the best you can for the next generation. If your spouse is a non-resident then additional planning may be required. One type of trust to consider is a Qualified Domestic Trust otherwise known as a QDOT.
Form 3520/3520-A for Foreign Trusts
When it comes to reporting foreign trusts, the Internal Revenue Service has made enforcement a key priority. Foreign trust reporting could be complicated, with taxpayers being required to file Forms 3520 and 3520 –A. The failure to properly file Forms 3520 may result in significant fines and penalties and they could be very difficult to abate.
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