Estate planning is never done. Just like a piece of real estate, it needs periodic maintenance and care to make sure it’s in good shape when you need it most. Provisions in the newly passed GOP tax plan mean it’s time to revisit a handful of key areas of your estate plan. Below we discuss the five areas you should check-in on.
Will the new tax law impact my estate taxes?
The new tax law exempts a portion of an estate’s value from what is commonly termed the “death tax,” just like to prior law did—but the thresholds have changed. The previous exemption limit was $5.6 million; this was bumped up to $11.2 million. This increase in the death tax exemption means that many wealthy families will see relief and a need to simplify their estate tax plans. Under the new threshold, experts estimate around only 5,000 estates per year will be subject to taxation above these limits. In other words, it’s a great time to be rich—but not too rich.
I’m married, so what happens to my surviving spouse?
The exemption limit for married couples relates to portability, which is the term for how a surviving spouse avoids estate taxes on what they inherit from the deceased spouse. Portability as a rule was instituted back in 2012, and the new law preserves it.
An estate plan can invoke portability rules by using specific language, without which a spousal estate may have to create a bypass trust that will cost a lot of time and money, and will likely reduce the inherited amount.
How will my state estate tax be impacted?
Right now, 15 states have some type of estate tax. Out of these 15 states, a portion link to the federal exemption limits—so these will automatically increase. Others are completely independent, so unless these state legislatures act, nothing changes here. With some states having exemption limits as low as $1 million, there is a good chance of being exempt from federal estate taxes and subject to state estate taxes—so you still need to proactively estate plan.
Will my estate plan fulfill my wishes and avoid unintended consequences?
Boilerplate documents can cause outcomes that don’t align with your exact intentions and wishes. If you have particular needs or desires, you need to work with an estate planning attorney and accountant to set up or revise your estate plan. On the financial side, one example is the overly vague and general Power of Attorney (POA).
Without specific provisions that otherwise limit or prevent specific actions, a POA has the potential to allow the managing agent to engage in a variety of undesirable behaviors. For example, he might be able to legally make gifts to whomever he wants (including himself); change beneficiaries on financial accounts such as life insurance or 401ks; or discontinue financial support to a disabled relative, just to name a few. Ultimately, the only protection against someone exercising unwanted power over your estate when the time comes is to be specific and lay it all out ahead of time.
How often/soon should I review my estate plan?
A general industry rule of thumb is approximately every three years, assuming no significant life changes. Otherwise, anytime you experience a major life adjustment such as a divorce, birth of children or grandchildren, the sale of a business, retirement, or a major change in health status, you need to revisit your estate plan and adapt it.
Changes in circumstances drive the need to modify estate plans—and the new tax law is one of those types of changes. The expansion of exemption limits may mean you have more money to go around, changing your wishes, or it could mean that previous plans are no longer necessary. Whatever the case may be, now is definitely the time to revisit your estate plan.