Estate Planning Tips Under the New Tax Law

01.30.2018

President Trump signed the Tax Cuts and Jobs Act of 2017 (the Act) into law on December 22, 2017, extensively modifying U.S. taxation laws for individuals and business. Among other things, the Act increases the applicable exclusion amount of the Federal estate, gift and generation skipping transfer tax from $5 million per individual, indexed annually for inflation, to $10 million in 2018 (the inflation adjusted exemption amount is expected to be approximately $11.2 million or $22.4 million for married couples).

In Light of the Act, every individual should review his/her current estate plan!

The Act impacts each individual’s estate plan differently; hence, each plan should be reviewed - and possibly revised - in light of the changes.  The failure to promptly review and/or revise a current estate plan could yield catastrophic results.     

While married couples with a net worth below $11.2 million - which makes up a majority of the American population - do not have a current Federal estate, gift or generation skipping transfer tax liability under the Act, they may still be liable for New York State estate tax liability, since the provisions of the Act have no effect on New York’s current tax laws.  New York’s exemption amount remains at $5 million, indexed for inflation.

Further, under the Act, the $11.2 million exemption amount is set to expire or “sunset” in 2026, at which time the exemption amount will revert back to the 2017 exemption amount (i.e., $5 million per individual, indexed for inflation).  Hence, while married couples with a net worth below $11.2 million may currently not be exposed to tax liability under the Act, there is a very real chance that they may be exposed to Federal (as well as State) estate tax when the provisions of the Act “sunset” in 2026.

Generally speaking, regardless of the Act, there are many other significant reasons for individuals to frequently review and update their estate plans:

  • Inheritances for Spouses.  While many individuals prefer to leave their entire estates outright to their surviving spouse, it often times makes sense to divide assets during lifetime so that some portion of the combined assets are held in trust for the benefit of the surviving spouse to provide potential asset protection benefits, and to ensure that upon the surviving spouse’s subsequent death, the assets pass to beneficiaries and in the manner designated by the predeceased spouse.
  • Inheritances for Children.  Individuals should review how their children will inherit their assets to ensure they are giving their children the best opportunity to financially succeed. Many times, this means holding assets in trust for the benefit of a child until the child attains a certain age.
  • Annual Exclusion Gifting.  Individuals should consider starting - or continuing to make - annual exclusion gifts up to the $15,000 per recipient in 2018 ($30,000 jointly from a married couple).  Consideration should be given to making gifts in trust for younger beneficiaries or other beneficiaries who do not have an immediate need for the gifted amount.
  • Asset Ownership.  Asset titling is a critical part of any estate plan, since the title to an asset may dictate to whom the asset is transferred at death.  Individuals should revisit how assets are titled to ensure they pass to the intended beneficiaries.
  • Fiduciary Appointments.  The appointment of Executors, Agents, and/or Trustees under an individual’s estate plan should consistently be reviewed. Individuals often initially select family members or friends to act as fiduciaries, but as time passes and those individuals age, consideration should be given to the appointment of younger individuals as successors.  At the very least, individuals should review the mechanisms for how successor fiduciaries are appointed under their estate plans.
  • Incapacity Planning.  Individuals are living longer now than ever before.  Consequently, the chance of an individual losing capacity during his or her lifetime is also increasing.  Individuals should review their current planning documents in order to ensure that their Powers of Attorney and Health Care Proxies/Living Wills are current, and that the Agents appointed are appropriate.  Individuals may also want to consider incorporating a revocable trust into their estate plans in order to provide a smoother transition of control in the event of incapacity. 
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