The Physics of Debt: Using Leverage to Gain Estate and Income Tax Advantages

The rules of the game in estate planning have changed. No longer can planners be so focused on the estate tax liability. They now must be equally focused on income taxes. In the past, taxpayers were willing to give up a step-up in basis at death in order to reduce or eliminate estate taxes. That is often no longer a good trade. With a smaller difference between income and estate taxes, taxpayers and planners must now consider the impact of both, especially for those in states with their own high income taxes. Using debt as a way to gain income and estate tax advantages, and when combined with the power to replace trust property, strategic borrowing may also provide flexibility in dealing with otherwise irrevocable estate planning transactions.