Estate Plans and the New Tax Law Changes
Lots has been written, and will continue to be written, about the changes and consequences of the Tax Cuts and Jobs Act (TCJA). One area that definitely deserves attention is the effect of the law on folks who currently have a formal estate plan in place … and those who don’t, but who should consider initiating a plan.
In this issue of The Blair Bulletin, we’ll tackle both categories of taxpayers. So stay tuned for how the TCJA may affect you, your heirs and your tax bill. Interestingly, you’ll find that some changes are quite beneficial, some just different and some that may not be forever.
Taxpayers with Estate Plan in Place
The primary changes to the tax law come down to federal estate tax exemptions, portability and gift tax exclusions. Here’s a rundown on each.
Federal Estate Tax Exemptions: Effective the 2018 tax year, the new tax law more than doubles the federal estate tax exemption for single taxpayers from $5.49 million per person to $11.2 million. For couples that escalates the exemption to $22.4 million … a major bump from the prior limit of $10.98 million.
The good news is that under the revised regulations, most families will not be subject to federal estate taxes. That said, if you have an existing estate plan in place it is important to enlist the aid of an estate planning professional to ensure that your assets and trusts (if you have one or more) are structured to minimize administration time and attendant costs.
Portability: Portability is retained under the TCJA. That is important to married couples as any unused portion of the deceased spouse’s $11.2 million exemption may be shifted to the surviving spouse. For example, if a spouse passes away in 2018 with an exempted amount of $4 million, that amount will be deducted from the deceased spouse’s $11.2 million exemption. Following that, the surviving spouse may add the difference ($7.2 million in our example) to his/her $11.2 million, up to a total exemption of $18.4 million.
Higher net worth families are well advised to immediately seek help from a tax professional upon the death of the first spouse. The objective is to ensure that the unused estate tax exemption is not lost.
Gift Tax Exclusions: The TCJA now permits single taxpayers to make annual tax-free gifts of $15,000 per person – up from $14,000. Married couples will enjoy a boost from $28,000 to $30,000 annually per person.
In keeping with the federal estate tax exemption increase, the new tax law has more than doubled the lifetime amount of tax-free gifts. Single taxpayers may now gift up to $5.49 million per person … while married couples will enjoy a lifetime tax-free gift limit of $11.2 million per person.
Note: As referenced above, these changes may not be permanent. Unless Congress acts to reverse the current “sunset” provision, the estate and gift exemptions will revert back to pre-2018 levels (indexed for inflation) at the end of the 2025 tax year.
Taxpayers with No Estate Plan … and a Refresher for Those Who Do
So what’s the big deal about estate planning? Simply put, a professionally established Estate Plan helps you to deal with the unknown future. That means you will provide peace-of-mind for your family and create an orderly transition of assets in the event of your death or disability.
A quick statistic: Approximately 55 percent of American adults do not have a will or other estate plan in place, according to LexisNexis.
Without an estate plan, you leave yourself and your loved ones with a sure recipe for legal, financial and family conflicts.
The old adage, “Hope for the best, and Plan for the worst,” comes to mind. Without that sounding more ominous than necessary, in the absence of adequate planning, disability due to illness or injury can multiply otherwise avoidable legal and financial challenges. For example, one mistaken belief by many married couples is that financial and health care decisions can be made for one another in the event either spouse becomes disabled. Not necessarily true!
The able-bodied spouse may not automatically have access to the disabled spouse’s medical information and finances.
Likewise, in the event of death, there should be a carefully developed roadmap for the distribution of the deceased’s assets, minimize estate and transfer taxes, specify care for minor children and minimize or eliminate preventable conflicts among family and heirs.
A properly crafted Estate Plan will serve to protect, preserve and manage your estate in the event of death or disability.
Note: Your last name does not have to be Gates, Bezos or Zuckerberg to be a candidate for an estate plan. Virtually anyone 18 years old, married or single, should arrange for a trusted representative to make personal, health care and financial decisions in the event of incapacity to do so or death.
DIY or …? Estate Planning is not a do-it-yourself project. Your best course of action is to seek help from experienced experts who specialize in estate planning matters. Once chosen, your advisors will determine the issues to be addressed and the appropriate documentation required to ensure instructions consistent with your desires.
Competent, Capable People: Another key element of your plan is your selection of decision makers, i.e., the executors, trustees, agents and guardians who will shoulder significant responsibilities on your behalf. Choices should never be made simply because an individual is a family member or close friend. Your selection should reflect the individual’s capabilities and willingness to fulfill the required duties of the role he or she is expected to play. Alternatively, you may appoint an entity such as a bank or trust company.
So, there is plenty to consider, but also plenty of help available from a capable estate planning team. Additionally, we at Blair + Assoc stand ready to serve you and your advisors in offering consultation as well as filing the following documents:
• Court accountings
• Final income tax returns for the deceased
• Estate tax returns
• Trust income tax returns.
Of course, all of our work is with an eye to maximize your estate value and minimize your tax bite. One last thought: we at Blair + Assoc work with a number of skilled estate planning professionals. If we can help with a referral … just ask.