Have You Looked At Your Estate Plan Lately?

You have most likely heard the phrase “the only certainties in life are death and taxes”, but have you thought about how the timing of death and the amount of taxes owed are not certain?

“The Tax Cuts and Jobs Act of 2017 leaves the federal wealth transfer tax system in place, but temporarily doubles the exclusion amount for estate and gift taxes to $11.18 million per individual or $22.36 million per married couple until the end of 2025,” said Joyce Beebe, a fellow at Rice University’s Center for Public Finance. “In 2026, absent congressional action, the base exclusion amount will revert to $5 million, indexed for inflation.”

Since 2001, states have been moving away from the estate tax as a stable revenue source. Many states either repealed the tax or increased the exclusion amounts and in 2018, only 12 states plus Washington, D.C., levy estate taxes, all with different structures from the federal tax. State officials stated that a major reason for eliminating the estate tax was tax competition – they believe that if wealthy senior citizens do not move to other states to avoid paying state estate taxes, the state may eventually collect more revenue from state personal income taxes, property taxes or sales taxes to recoup the lost estate tax revenue.

After 2020, a more likely outcome is that either the increased exclusion will be made permanent, or the exclusion amount will be adjusted prior to the 2026 sunset of the bill. As history has shown, we won’t likely see changes to the exclusion amount until the start of 2026.

The new tax law has led some seniors to assume that they can delete estate planning from their to-do lists. But that is a dangerous assumption.

With the new tax law roughly doubling the federal estate-tax exemption to about $11.2 million per person, the vast majority of people will not be subject to federal estate tax. But before you delete your estate planner from your contacts, did you consider that your old estate planning documents may still need to be updated?

The law opens new opportunities for estate-planning techniques which may save on income tax. And it does nothing to diminish a host of other factors that drive many people to engage in estate planning, including creditor protection, defense against elder financial abuse, and maximizing bequests. Just to cement your estate planner’s job security, the new higher exemption amount sunsets at the start of 2026, when the old $5 million exemption—adjusted for inflation—reappears. And the law could be changed legislatively even sooner. Who knows?

It’s always a good idea to review your estate plan regularly, regardless of legislative changes. Your net worth changes, you or your children get married or divorced, grandchildren are born—and old documents may no longer reflect your wishes. So rather than consigning estate planning to the back burner, the new law should actually light a fire under seniors who haven’t reviewed their documents in years.

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Kay Sowa

About the Author

Kay Sowa is a paralegal in the Trusts and Estates Group at Capehart & Scatchard, P.A. She is an IRS Enrolled Agent as well as a Certified Trust and Financial Advisor. She oversees the trust and estate administration practice for the firm. She is an accomplished author and lecturer who has frequently spoken on behalf of a number of organizations including the National Business Institute and the Institute of Paralegal Education.

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