Overview of the Tax Cuts and Jobs Act of 2017

The TCJA introduced several key changes, including reduced individual tax rates, business tax relief, and higher estate tax exemptions. These provisions, which have been in place for nearly a decade, will change significantly starting January 1, 2026.

 What’s Changing?

Individual Tax Rates: The TCJA reduced individual tax rates, but these rates are set to increase in 2026, affecting a broader base of taxpayers.

• Business Tax Relief: The tax relief provided to businesses will expire, increasing the tax burden on business owners.
• Estate Taxes: The estate tax exemption, which currently allows estates valued up to $13.61 million to be passed on tax-free, will be cut roughly in half. For married couples, the exemption will drop from $27.22 million to approximately $14 million.

 Impact on Business Owners

If you own a business or are not a W-2 earner, your taxes are set to increase. The qualified business income deduction, which allows a 20% deduction on pass-through income, will also expire, significantly impacting your tax planning.

 Proposed Changes and Preparations

In addition to the expiration of the TCJA, proposed fiscal year 2025 changes under the Biden administration could further impact taxes. It’s crucial to start preparing now:

1. Review Your Estate Plan: Ensure your estate plan takes into account the lower estate tax exemptions. Consider strategies like making substantial gifts before the exemption decreases.

2. Consult Your Financial Advisor: Work closely with your financial advisor to understand how these changes will impact your financial situation. Plan to accelerate income or deductions where beneficial.

3. Tax Planning for Business Owners: If you own a business, consider the timing of income and deductions to optimize your tax position before the changes take effect.

Conclusion

Navigating these changes can be complex, but with careful planning, you can mitigate their impact. At Alexander Legacy Law, we’re here to help you understand and prepare for these tax changes.

Contact Us Today

If you have any questions or need assistance with your estate planning in light of these upcoming changes, don’t hesitate to contact me, Jonathan Alexander. Schedule a consultation today, and let’s ensure your estate and financial affairs are in order.

Contact Alexander Legacy Law at (949) 334-7823 for more personalized assistance.

To combat this risk, there are several asset protection strategies you can employ to safeguard your financial resources and property—including your home and business—from potential litigation and creditors. Here’s how you can fortify your defenses to make yourself a less appealing target for lawsuits and to improve your position should you face legal action. Below is a brief asset protection guide.

Ensure Adequate Insurance Coverage: Insurance Coverage is Key

The foundational step in asset protection is securing comprehensive insurance for both personal and business assets. Regular consultations with an insurance professional are crucial to maintaining sufficient coverage for your home, vehicles, and other personal properties. For business owners, staying updated on commercial general liability, professional liability, and employment practices insurance is key. Always take the time to understand the details in your insurance policies.

Reconsider Marital Property Arrangements

In some regions, transferring assets to a spouse may shield those assets from creditors, but this method has its drawbacks and limitations, particularly if a divorce occurs. Additionally, this strategy might not be effective in community property states, where assets acquired during the marriage are considered jointly owned regardless of whose name is on the title. Consulting with an estate planning lawyer is essential to navigate the best path for your circumstances.

Establish Separate Business Entities

To minimize risk, avoid holding all your assets under your personal name or a single business entity. By distributing significant assets like real estate, equipment, and receivables across various entities—such as multiple LLCs or trusts—you can ensure that only the assets in the entity facing litigation are exposed. An estate planning attorney can guide you in setting up these entities correctly and advise on their management.

Consider a Domestic Asset Protection Trust (DAPT)

Many states now recognize DAPTs, which offer robust protection against creditors’ claims. Incorporating a spendthrift clause into a DAPT can protect inherited assets from your heirs’ creditors in certain states. However, the effectiveness of a DAPT can vary widely from one state to another, making it crucial to work with a knowledgeable attorney to choose the best jurisdiction and structure the trust appropriately.

Explore Offshore Trusts

Placing assets in a foreign asset protection trust (FAPT) positions them beyond the reach of U.S. courts, thus complicating legal actions against them. The prospect of litigating in a foreign legal system often deters potential lawsuits. While FAPTs can be costly to set up and maintain and come with stringent reporting requirements, they may be a viable option for some.

Not every asset protection strategy will be suitable or necessary for every individual, but implementing even one or two can significantly reduce your vulnerability to losses from lawsuits.

Need Asset Protection Assistance?

If you’re considering enhancing your asset protection plan, start by consulting with a qualified estate planning attorney who can tailor strategies specifically to your needs. At the Law Office of Jonathan D. Alexander in Orange County, we specialize in crafting bespoke asset protection solutions for our clients. Reach out today at (949) 334-7823 to schedule a consultation and take a proactive step towards safeguarding your assets.