Ohio Estate Planning 101: What You Need to do Now

Ohio Estate Planning 101: What You Need to do Now

22 Sep 2021

The ongoing COVID-19 pandemic has altered the way in which estate planning services are provided. Though the underlying purpose of estate planning is still the same, the manner in which the actual planning is performed is proving quite dynamic. The function remains the same, yet the form is taking new shape.

If you haven’t updated your estate or financial plan since the start of the pandemic or have no such plan in place, it may be a good time to meet with a CERTIFIED FINANCIAL PLANNER™ practitioner (CFP®) in your area. The CFP® professional fiduciary status means that you, the client, is owed a fiduciary duty of care. The objective is to receive fair and reasonable guidance as you contemplate your needs for comprehensive estate planning and financial planning.

Estate Planning That is Logic-based

Making hasty decisions about money, assets, or legal documents when emotions overpower logic could lead to mistakes being made or something left out of an estate plan entirely. With the proper guidance, a financial planner can provide logical financial advice based on facts rather than speculation. We live in interesting times, and the world today definitely seems hectic, but through the help of a CFP® professional, you can get the guidance you need to safeguard your hard-earned assets and protect your family’s financial future.

Though investment portfolio balances initially decreased when the pandemic first started, those who held their positions or even viewed the selloff as a buying opportunity prevailed through patience. Having someone to advise you about your wealth can help when anxiety and fear are prevalent throughout the markets.

Estate Planning is Proving Even More Dynamic

Estate planning previously occurred in-person with a wealth manager or financial planner. Nowadays, much of estate planning is done through web-based video conferencing. It is even possible to digitally sign legal and financial documents for estate planning purposes. Estate planning in Ohio has the potential to change even more if proposed legislative alterations affect estate taxes and gift taxes. Those taxes may increase on some transfers, minimizing the amount of money an individual can give to a family member or other party before the accrual of the estate or gift tax.  This change would increase the tax rate applicable to transfers that are taxable.

In short, Ohioans who have successfully shielded their wealth from Uncle Sam in prior decades might find it becomes increasingly difficult to do so in the years ahead. Planning for these types of changes can help with estate plan development and comprehensive financial planning. The idea is to ultimately make these complex challenges quite simple to understand and become part of your estate plan. The job of a CFP® professional is to provide a holistic approach to financial planning with customized planning unique to each individual client.

Estate Planning Strategies for Business Owners are Changing

It is no secret that the Biden administration is considering increasing the capital gains tax as well as several other taxes. These tax hikes are designed to help offset the vast sums of government money spent to combat the pandemic while generating essential revenue during this challenging chapter of our nation’s history. If you are contemplating any type of estate planning, you need to at least be aware of the potential for a capital gains tax increase in the years ahead.

estate planning for business ownersIndividuals who sell a business or another asset that has appreciated in value are encouraged to meet with a CFP® professional to determine if the potentially higher tax will become a material cost that affects retirement or estate planning.

Part of wealth management planning is anticipating how to determine the best approach to potentially higher tax bills and lower your tax risk so you can have more income. For example, it might make more sense to speed up the sale of a business or other appreciated asset to spur a potential capital gains tax next year, or it might make more financial sense to simply continue holding the asset.

Ohioans who own or manage a business should also be aware that the proposed alterations to business owner tax rates could make a sizable dent on budgets, especially for companies that are either small or medium in size.  Increasing tax rates for small and medium-size businesses when they are attempting to rebuild momentum following the extensive pause in economic activity during the pandemic makes estate planning in Ohio that much more important.

Local Ohio business owners should be aware that an increase in individual income tax rates has the potential to lead to a hike in business owner income tax as most businesses are considered to be of the pass-through type. If the phase out of the 20% deduction for qualified business income is implemented sooner than initially planned, taxes owed to the federal government could then increase.

Planning on Using a 1031 Exchange?

A 1031 Exchange is a category of real estate transactions that allows a person to transfer ownership of a business without triggering capital gains tax. Basically, you exchange your business for another property more suitable to your needs. This exchange enables both the buyer and seller not to have capital gains on the sale of their properties. A 1031 Exchange basically means that an investor purchasing an investment property can defer paying taxes on any gain earned on the original investment until they sell or otherwise dispose of the investment property they received in the exchange.

There has been extensive debate as to whether 1031 exchanges provide the wealthy with an unfair advantage in the context of taxation and estate planning in Ohio. If you plan to use a 1031, it might be time to reevaluate that strategy.

The Biden administration plans to eliminate or significantly change 1031 exchanges along with the preferential tax rate for carried interests that ultimately reduces real estate taxes as well as those applied to private equity investors. Though the 1031 exchange is not guaranteed to be eliminated, Ohioans need to consider planning if it might not be an estate planning and tax minimization tool available moving forward.

High-tech Estate Planning Tailored to Your Needs

The pandemic has clearly changed the financial pictures of millions of Americans. Your financial nest egg may have decreased in size. Perhaps your investments have not performed as well, or your hours were cut back, or your company had to downsize. All of these things may have had an effect on how you view your risk tolerance.

By turning to a fee-only CFP® professional who has the latest tech tools for investment planning and by meeting with a wealth manager in person or through live video conferences, you can embrace all the technological changes that facilitate Ohio estate planning procedures. Having your estate planning addressed and capitalizing on potential tax law changes can lead to sleeping more peacefully at night, and keeping more dollars in your pocket.

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More About the Author: E. Michael McGervey, CFP®, CRPC®

Mike is passionate and skilled at helping clients solve complex financial challenges. He’s known for his thoughtful communication, educational approach, and exceptional customized service. Mike has been a sought-after source for financial television, magazines, and newspapers looking for insightful analysis. His expertise has been featured by CNBC, FOX Business and...