How’s Your Estate Looking after the Tax Law Changes? Better Check…

How’s Your Estate Looking after the Tax Law Changes? Better Check…

June 21, 2018
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Chances are you cleverly crafted your estate. You worked hard to ensure your wills and trusts were set up properly to suit your personal needs in the now, as well as the desires for your heirs when you pass. Because it can be a daunting task, many people get their estate squared away and don’t look at it again for quite some time. But, you should review it at least every three years; more often if your financial situation changes. And, with the recent tax law changes—especially the way they affect estates—you need to review yours now.

The Tax Cuts and Jobs Act was passed at the end of 2017 and impacts American tax-payers from 2018 to 2025. The new code set forth sweeping changes across the board, and estates were not left out. Some of the provisions are pretty major, which is why you should schedule an appointment with your financial or estate planner now to review and adjust your estate and trust plans accordingly.

For now, here are the basics of what you need to know:

Estate tax exemption is now at $11.2 million, which means if your estate is worth less than that amount, it will not owe federal tax upon your death. The exemption limit for married couples is $22.2 million.

When reviewing estate structures, married couples should ensure that the portability of the estate is preserved by specific language to protect the surviving spouse’s inheritance within the new tax code provisions.

Keep in mind that while your estate (if valued as described above) may be exempt from federal taxation, certain states impose some sort of tax on estates. If you live in any of the following states, be sure you consult a professional to comply with the tax laws: Connecticut, Delaware, District of Columbia, Iowa, Kentucky, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, Oregon, Pennsylvania, Rhode Island, Tennessee and Washington.

The Tax Information Website provides detailed information on estate tax in each state.

Starting in 2018 the new gift limit is $15,000 per person. But, if you have three grandchildren, you are allowed to gift $15,000 each—up to a total of $45,000—without using your life time exemption, which is $11.2 million.

If you gift into a 529 plan, you may upfront the $15,000 per year gift for next 5 years (for a total of $75,000 in one deposit) without using the lifetime exemption.

These changes certainly demand a visit with your financial or wealth planner. You must have a clear understanding of how the new laws affect your estate, so you can make the changes you should make to preserve the integrity of your plans.

Regardless of the value your estate, a sit-down with your advisor or estate planner is still recommended. If it’s been a while since you created or reviewed it, it could be outdated. You want to ensure your intentions for your heirs are clearly stated and will be distributed correctly when you pass. If you’ve established flexible trusts for your immediate family and/or revocable trusts for yourself or elderly family members, these need a thorough review, too.

Check to see that your power of attorney (POA) is in order. This is an important document allowing the assignee to make gifts and distributions from your estate—and an outdated POA may give the designated person too much or too little power to ensure your wishes are met.

The whole purpose of establishing estates and/or trusts is to protect your hard-earned wealth and to bequeath it as you wish. These structures are meant to do exactly that and are perhaps the most important documents you’ve ever created regarding your personal assets. Treat them as such, and do not assume all will be well if you do not review them periodically with a trusted financial professional or estate planner. Now is the time to schedule that review to make sure your intentions are in line with the new tax code provisions.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.