Category Archives for Estate Planning

Sorrell Law Firm, PLC 7575 E Redfield Rd # 217, Scottsdale, AZ 85260 (480) 776-6055 2017 Tax Act

House of Representatives Releases 2017 Tax Act Reform Bill

Below is a summary of the U.S. House of Representatives 2017 Tax Act as it relates to individuals.

Tax Rates: The 2017 Tax Act compresses the current 7 tax brackets (10%, 15%, 25%, 28%, 33%, 35%, AND 39.6%) into four tax brackets: 12%, 25%, 35% and 39.6%. The 12% tax bracket applies to all taxpayers except for those whose marginal rate is in the top bracket, in which case the 12% rate is phased out for the top earners.

The 25% tax bracket starts at $90,000 for married taxpayers ($45,000 for single).

The 35% tax bracket starts at $260,000 for married taxpayers ($200,000 for single).

The 39.6% tax bracket starts at $1M for married taxpayers ($500,000 for single).

Standard Deduction and Personal Exemption: The current standard deduction of $12,700 for married taxpayers ($6,350 for single) is increased to $24,000 for married taxpayers ($12,000 for single).  The standard deduction increases to $18,000 for single taxpayers with at least one child. However, there will no longer be personal exemptions (currently $4,050).

Small Business Owners: Individuals owning a closely held business will pay a maximum rate of 25% for a portion (about 30%) of their business income with the remaining 70% taxed at the individual tax rates.  Capital gains, interest income, and dividend income retains its character as under current law.

Child Tax Credits: Child tax credits (currently $1,000 per child) are increased to $1,600 per child, plus non-child dependents are allowed a $300 credit. Credits are a dollar for dollar reduction in your tax liability (not a tax deduction, but rather a credit acts like a tax payment and could result in a refund if you otherwise have no tax due).  Under the new law, the refundable portion of the tax credit will remain $1,000.  These credits are phased out for married taxpayers exceeding $230,000 ($115,000 for single).

Itemized Deductions: Current law phases out itemized deductions for higher income taxpayers with complex formulas. The 2017 Tax Act repeals the phase outs.  Current law allows mortgage interest deductions for up to two homes on debt not exceeding $1M.  The 2017 Tax Act allows mortgage interest deductions on only one primary residence with a limit of a $500,000 mortgage. Current law allows deductions for state income and property taxes.  The 2017 Tax Act limits these deductions to state and local taxes paid in connection with a business activity, plus property taxes up to $10,000. The current itemized deductions for casualty losses are repealed in the 2017 Tax Act.  The 50% limitation for cash contributions to public charities is increased to 60% allowing a larger deduction for charitable giving. Tax preparation expenses will no longer be deductible under the 2017 Tax Act, as are deductions for medical expenses.  Likewise, alimony payments will no longer be taxable to the payee nor deductible to the payer.  Further, there will be no deduction for unreimbursed employee expenses.

Sale of Principal Residence: Under current law, taxpayers may exclude from income gain on the sale of their principal residence up to $500,000 for married taxpayers ($250,000 for single) if they reside in the home for 2 out of 5 years.  Under the 2017 Tax Act, to receive the exclusion, the taxpayer must hold the residence as a primary residence for 5 out of 8 years, and the exclusion is phased out for high income taxpayers ($500,000 for married taxpayers, $250,000 for single).

IRA and Retirement Plans: The current law allows taxpayers to convert qualified plans into “Roth IRAs,” then invest aggressively and if they make substantial gains, they retain the Roth IRA with all the gains, free of tax; however, if their aggressive investments lose money, they can retroactively reverse the conversion to recoup the costs of converting to a Roth IRA. The 2017 Tax Act closes this loophole.  

Overall, the 2017 Tax Act lowers taxes on all individuals under $500,000 of income, and simplifies some of the more complex rules while closing unnecessary loopholes.

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Are Handwritten Wills Enforceable? Princess Diana Thought So…

Princess Diana was one of the world’s most loved celebrities – and one of the richest.  Her tragic death in 1997 was world news. The majority of her estate, reportedly worth $40 million at the time of her death, was divided between Prince William and Prince Harry in her estate plan. However, she also prepared a handwritten will that directed her executors to give a number of personal effects to her godchildren. Those executors, her mother and her sister, went to court and had it ruled unenforceable.

However, she also prepared a handwritten will that directed her executors to give a number of personal effects to her godchildren. Those executors, her mother and her sister, went to court and had it ruled unenforceable.Continue reading

Living Trust Incentive Provisions

This edition of Whitney’s Tax Files answers a question from a client who asks, “How can I stop my kids from blowing the money after I die?” Well, the statistics show that most people go through their inheritance after about ten months, and most estate plans, the standard forms that you see, they say, “Give my kids all the income every year, and then they can have a third, a third, a third at this age, that age, and the other age.” Essentially, we are not providing any incentive for our children, and so long as our children survive to the next year, they get more money, whether they’re being responsible or not, so there’s a couple things that we can do to protect them from themselves.Continue reading

Will or a Trust? What’s the difference?

“What is the difference between a will and a trust, and why would I want a trust and not a will?” A will is a document that says, “Upon my death, here’s what happens to my assets.” It does nothing while you’re alive. So, if you’re alive and you become disabled, the will doesn’t help because it’s not yet effective, and so you need to go to a guardianship or conservatorship type of proceedings, and it’s expensive and not desirable.Continue reading

Sorrell Law Firm, PLC 7575 E Redfield Rd # 217, Scottsdale, AZ 85260 (480) 776-6055

Wills vs. Trusts

Confused about the differences between wills and trusts?  If so, you’re not alone. While it’s always wise to contact experts like us, it’s also important to understand the basics. Here’s a quick and simple reference guide:Continue reading

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