New Tax Law Calls for An Estate Plan Review

Don’t assume that the new tax law means that you don’t need an estate plan. If anything, you need to review your estate plan to make sure you’re not missing out any new opportunities.

When was the last time you reviewed your estate plan? If it’s been more than a few years, you could be risking making some big mistakes, in terms of taxes and what you leave behind for your loved ones.

The new tax law in effect doubles the federal estate-tax exemption to roughly $11.2 million per person. As a result, most people won’t be subject to federal estate tax. However, before you unfriend your estate planning attorney on social media, understand that the drastic increase in the federal exemption amount means that old wills and trusts may be in dire need of an update.

Kiplinger’s recent article, “Update Estate Plans in Light of New Tax Law,” notes that the 2017 tax reform gives new opportunities for estate planning techniques to reduce your taxes. You also still have the other benefits of estate planning to consider, such as creditor protection, strategies to protect against elder financial abuse, and maximizing bequests. However, remember that the new higher exemption amount sunsets at the start of 2026. That’s when the old $5 million exemption (adjusted for inflation) reappears.

For example, your estate plan may include a will and trust that applies formulas tied to the federal estate-tax exemption. With the new tax law, that could now have unintended consequences.

You should review your estate plan regularly, despite the legislative changes. That’s because life changes: your net worth changes, you or your children get married or divorced, grandchildren are born, and as a result, your old estate planning documents may not accurately reflect your wishes.

When you update your documents, remember your durable power of attorney. This type of gifting power may have made more sense when the federal estate tax exemption was much lower. However, with today’s higher exemption, broad gift provisions shouldn’t be included in some powers of attorney, because they leave seniors vulnerable to financial abuse.

The strategies that worked so well five or ten years ago when you last reviewed your estate plan, may be completely out of date. You may not need a complete overhaul of your estate plan, but if you haven’t reviewed your estate plan recently, including checking on all of your beneficiaries, you may be doing yourself and your loved ones more harm than good.

Reference: Kiplinger (April 28, 2018) “Update Estate Plans in Light of New Tax Law”