One of the challenges of estate planning is that some of the rules are constantly subject to change. A few of the principles are seemingly timeless, like deciding inheritances and determining alternative decision-makers in the event of disability. But the more sophisticated matters, usually involving minimizing tax liability, are frequently open to modification, providing complexity to the task of putting future plans into place.
For example, the tax benefits of certain trusts or the eligibility rules for New York Medicaid can all be altered by lawmakers on yearly basis. As a practical matter, those changes are most common in times like these–when budgets are stretched to the max and lawmakers are looking for ways to avoid cuts to programs without passing obvious tax increases. Often, when policymakers refer to closing “loopholes,” they are referring to various tax savings strategies or other aspects included in sophisticated estate planning. Local residents should look closely at the specifics of these “closing loophole” proposals when they are offered to determine if it may impact their own situation.
Along those lines, the President’s proposed budget unveiled earlier this month, if passed, would alter various retirement tools that community members now enjoy. A story from the Benefits blog offers a helpful summary of some of these possible changes.
Of particular note is a provision in the budget which calls for reigning in tax-saving retirement accounts. These accounts, like an IRA, are used by virtually everyone to build up a nest egg while deferring immediate tax payments. The President’s proposal would cap the use of tax-preferred accounts at $3 million. This is roughly the amount needed to finance a $205,000 per year annuity in 2013.
As the post notes, however, these changes actually open up a whole new level of complexity. It is unclear if defined benefits are included in that cap amount. The plan does not explain if Roth IRA earning are included. The cap would likely need to adjust every time interest rates rose or fell to account for annuity changes. The list of complications goes on.
It is important to remember that this is merely a proposed budget, with provisions that may or may not become law. Yet, it is also a reminder that all sorts of legal changes, even”closing loopholes,” can have very real effects on the planning of so many New Yorkers. As always, the prudent step when unsure about how legal changes may affect your specific case is to ask your estate planning attorney and financial advisers for tailored advice.