Is It Time to Update Your Houston Estate Plan?

A federal bill working its way through Congress will have dramatic implications for Texans and their estate plans. Once the bill becomes law, some of the estate planning techniques that have assisted Americans with sizeable estates will no longer be available. Fortunately, there is still time for Houston residents to take advantage of several favorable laws still in place.

Changes to the Gift and Estate Tax

Perhaps the most notable change to the law will be a sweeping reduction in the unified credit amount. The unified credit amount for a married couple is currently $12 million. This means that married estate holders can make a combined total of $12 million tax-free transfers in the form of lifetime gifts and transfers upon death.

The bill cuts the unified credit in half, slashing it to just $6 million for couples.

For many Texans, the gift and estate tax exclusion has been the bread and butter of the estate planning process. Those with large estates may wish to modify their estate plan in preparation for the new exclusion limit, such as maxing out the current limit through lifetime gifts.

Disruptions to Grantor Trust Planning Strategies

Another important estate planning tool has been the use of trusts as a strategy to reduce one’s tax burden. Specifically, trusts can be used to shift a person or couple’s income into a lower tax bracket. Over time, however, changes in the law have diluted the ability to use trusts for the purpose of income tax savings. In turn, taxpayers have responded by using trusts for estate tax purposes instead.

The new bill attacks one type of these trust types, in particular, known as the intentionally defective grantor trust.

An intentionally defective grantor trust is effective for estate tax purposes, but not for the purpose of income taxes. The new bill rectifies this disparity, making the income and estate tax rules more consistent. Specifically, it appears that any trust assets included on an income tax return will also be included as part of the grantor’s estate.

This new rule will apply to any trusts made after the bill’s enactment to law, as well as to any additions made to an existing trust.

The bill contains a variety of other provisions affecting trusts that should be discussed with a knowledgeable Houston estate planning attorney immediately. For example, as it currently stands, the bill will affect trust distributions made to beneficiaries besides a grantor. At this time, the Build Back Better bill is moving quickly through Congress. Houston residents, however, still have time to make calculated changes to their estate plans to take advantage of current beneficial laws.

Contact a Texas Estate Planning Lawyer

Houston residents with sizeable estates must be prepared to respond quickly to changes in federal law. The McCulloch & Miller, PLLC team has been keeping a close watch on developments on Capitol Hill in order to assist clients like you during this challenging time. Our experienced Houston estate planning attorneys are prepared to assist Houston residents in adjusting their estate plans to take advantage of current federal laws and in preparation for upcoming changes to those laws. To ensure that your hard-earned assets are secure and protected, call us today at 713-333-8900 to schedule a free, no-obligation consultation.

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