When Was the Last Time You Reviewed Your Estate Plan?


This blog post was previously published on November 5, 2018. It was updated on November 11, 2019.

Make sure your estate plan is up to date post-tax reform and consider making large gifts now 

While this year did not bring any major new tax law changes that are likely to impact your estate and gift tax planning, that doesn’t mean you shouldn’t take the time to review and evaluate your plans.

Make or plan for gifts now

The Tax Cuts and Jobs Act, effective in 2018, doubled the estate and gift tax exemptions. This is the amount you can gift during your lifetime or give to heirs at your death without paying federal estate and gift taxes. For 2019, the exemption is $11.4 million per individual, and, in 2020, it will rise to $11.58 million. Married couples enjoy twice the exemption.

As of now, these reforms are scheduled to sunset in 2026, reverting the exemptions to their pre-2018 level of $5 million, plus inflation adjustments. And, with the 2020 election less than a year away, it is possible that these exemptions could decrease sooner than currently planned. While we can’t predict what changes a new Congress or President may bring, taxpayers may want to get ahead of any changes by making large gifts now.

The IRS has clarified that it won’t claw back gifts when or if the exclusions are reduced (either at sunset in 2026 or at any other time).  Therefore, if the exemptions revert to lower levels, those who have not made large tax-free gifts will have missed an important opportunity.

There’s another reason not to wait: By gifting now, future income and appreciation can be removed from the donor’s taxable estate. Furthermore, by using trusts, gifts can be structured to give the donor indirect control and access to the gifted funds.

You may need to revise your estate planning documents

If you haven’t reviewed your estate planning documents since the tax reform, now’s is the time to do so. Provisions in your will or revocable trust that made sense when the estate tax exemption was lower could cost your heirs substantial tax dollars.

One common example is the credit shelter trust (CST). The CST used to be the one-size-fits-all approach favored by estate planning professionals to minimize estate taxes for married couples. However, under the new law, CSTs not only are unnecessary for many couples, they may increase income taxes to the family. In some cases, it may be advisable to amend your will or revocable trust to eliminate a CST. Alternatively, flexible provisions could be added to your documents to allow your executor or surviving spouse, after your death, to decide whether they want a CST.

Update your estate plan with more than just taxes in mind

Regardless of what happens in the future with the estate and gift tax exemptions, proper estate planning is still important. There are several non-tax benefits associated with keeping your estate plan up to date. Ultimately, you want to ensure that your assets go to the individuals or organizations you want and stay with them.

Here are just a few reasons to make sure your estate plan is in good shape:

  • Avoiding Probate: By creating and funding a revocable trust, your estate can avoid probate, or at least minimize the assets that are subject to probate. This can accelerate the transfer of assets to your family and can reduce or eliminate court costs and attorneys’ fees.
  • Planning for Incapacity: A revocable trust also provides a mechanism for a family member or other trusted person to manage the trust if you are incapacitated. This “successor trustee” can make investment decisions and pay your bills while you are unable to do so, and this may avoid a court-appointed guardian.
  • Protecting Your Family from Creditors and Predators: Estate planning often includes the creation of one or more trusts to protect your family. The trusts can be created and funded while you’re alive through gifts, or created and funded upon your death through your will or revocable trust. Either way, the trusts can be structured to protect assets from claims by your family’s creditors and from their spouses in the event of divorce. In many cases, your heirs can be given significant control over the trust assets (if you want) without forfeiting the creditor and divorce protection.
  • Business Succession: Rarely are all family members equally involved in a family business. Complications, or even litigation, can arise when you don’t have a well-conceived plan for passing control and the economic benefits of the business to your heirs. An estate plan can tackle these issues, and perhaps provide a mechanism to leave the business to one child while equitably providing for the others.

Contact an estate planning professional

The tax reform did not eliminate the need for estate planning. In fact, the new rules may be grounds to consider additional gifting, or, at the very least, a review of your existing estate planning documents. Contact me or another member of Kaufman Rosin’s estate and trust tax team to discuss these issues.

Scott Goldberger, JD, is a Estate & Trust Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.

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