Income Tax Savings.  In today's world -- at least at the present time -- the avoidance of estate tax is not a concern for a large potion of the population.   The federal government currently does not assess estate tax on estates under approximately $11,5 million (the exemption level decreasing to half that amount in 2026); Connecticut currently does not assess estate  tax on estates under $5.1, with the exemption level rising  to $7.1 million in 2021, $9.1 million in 2022, and to the federal level in 2023.  The majority of  other states,  including Florida, do not impose a state estate tax at all.

           However, the careful structuring of your  affairs can have a sizable impact upon your income tax exposure, whether or not you are likely to be subject to estate tax..  If you are a professional or entrepreneur, careful structuring of your business can be critical in this regard, including choices as to the form of your business (e.g. sole proprietorship, LLC, S corporation or Partnership). The careful structuring of your business is even more critical after the Tax Cuts and Jobs Act of 2017, which made very sizable changes in previously existing federal income tax statutes.  For example, as the result of the new "qualified income" deduction, business men and women, and professionals, can now insulate as much as 20% of their  net income from income taxation.  Substantial opportunities, as well as pitfalls, exist as a result of the new tax law.            


            Succession Planning. If you are a business owner, or a professional, careful planning for the succession of your business or professional practice can determine the income tax impact of such succession on yourself and those who succeed to your business or professional practice.    


            Additionally, if you wish one or more of your descendants to take over your business, how do you equitably treat other descendants?  What will be the relationship of a descendant whom you wish to inherit your business with other individuals who have been loyal employees? The careful drafting of a succession agreement, often referred to as a "buy-sell agreement," as well as careful planning for life insurance on your life that may be necessary to fund the purchase by another of your business, can be very important.                 


            Retirement Plans.  If you are approaching retirement, careful planning as to whom you designate as beneficiaries, and whether you provide that your retirement account(s) shall be held in trust for future generations, will have substantial income tax consequences for your beneficiaries after your death.  If you do not wish to leave your IRA or other retirement account outright to a descendant, and thereby risk that that descendant will immediately liquidate that retirement account to buy his or her favorite expensive vehicle, or engage in other extravagance, you may wish to leave that account to a trust.  To the extent that your designated beneficiary, whether an individual or the Trustee of a trust, does not immediately liquidate the retirement account, the account can continue to accrue earnings income-tax free.   However, the Secure Act, passed by Congress in late 2019, severely limits the time-period during which assets can be kept in a retirement account before being required to be distributed and therefore taxed  to the designated beneficiary, whether an individual or trust.  As a result, it may be important to consider strategies such as life insurance pr a charitable  remainder trust to offset such income tax consequences. 


Business & Retirement