Whether your Estate plan was created twenty years ago or as recently as 2017, thanks to the new tax laws, they may be due for an update. There’s a chance some documents may not even be needed anymore, as old estate tax strategies fall by the wayside.
With the new Tax Cuts and Jobs Act of 2017, the exemption for the size of estates has doubled, from $5.49 million for singles in 2017 to $11.2 million in 2018 (and $22 million for couples). So while the ultra-high-net-worth folks may still have to follow the same rules, those with less than the exemption may no longer need to use strategies such as credit-bypass trusts or certain life insurance trusts, etc.
But remember – estate planning isn’t solely about taxes. Do not just assume that because you are below the new exemption that you no longer on the market for estate planning documents!
No matter what your economic status, you should have and review your healthcare power of attorney, durable power of attorney, and beneficiaries on a regular basis. The core of estate planning is to keep control of your assets once you’re gone – protecting them from taxes is just one aspect.
Will Your Estate Tax Plan Change?
Coming back to your estate tax plan, more likely than not, the doubling of the exemption won’t affect your current plan. As previously mentioned, the old exemption limit was $5.49 million for singles and $10.98 million for married couples, but has now risen to $11.2 million for singles and $22 million for married couples in 2018. That means if your estate was already below $5.49 million (or $10.98 million for couples) you won’t see a change, nor will you see a change if your estate was already above $11.2 million ($22 million for couples).
Only those who have estates between that $5.49 million and $11.2 million mark should need to reevaluate their estate tax plan. Now it is estimated that only about 5,000 estates a year will be above the new limit.
Make Sure You Correctly Invoke Portability
The new tax law preserves portability, which was originally introduced as a tax revision back in 2012 – so there’s a chance your estate documents already have the correct language for it. But use these changing exemption limits for married couples as a time to review your documents to ensure you’ve correctly invoked portability so that the surviving spouse can avoid estate tax amounts on money inherited from the deceased spouse that’s within the new exemption limits.
Without portability, you may have to create a more complicated mechanism, such as a bypass trust, to try and avoid the additional estate taxes.
How Often Should You Review Your Estate Documents?
A good general rule of thumb is to review your estate documents every three to five years, or after every major life change. A major life change can include things such as marriage, divorce, birth of a child or grandchild, sale of property or a business, development of a chronic or terminal illness, etc.
And keep note, laws are always changing. Even with the current Tax Cuts and Jobs act of 2017, many provisions will sunset in 2025. Estate planning is not a set it and forget it scenario, but rather one that should always be evolving to fit your changing circumstances and protect your loved ones when you’re gone.
At Walsh & Associates, estate planning is just one of the many offerings we give to our clients. Have concerns about your own estate plan? Feel free to contact our office, we’re happy to help.
This information is not intended to be a substitute for individualized tax and/or legal advice. Please consult your tax and/or legal advisor regarding your specific situation.