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When is it Time to Update Your Estate Plan?

Once you have prepared your estate plan, it is important not to put it away in a safe deposit box and then forget all about it. Instead, you should periodically review your estate plan and ensure that it meets your individual goals, needs and circumstances. Keeping it updated is especially important right now due to significant changes in the federal tax code effective January 1, 2018. Estate planning, at its core, is about maintaining control over your assets. In light of the recent changes to the estate tax, it is a great time to make sure that your planning documents still accomplish your objectives.

We live in turbulent and dynamic times where the law as we know it is evolving and changing. For the first time since 1986, a major overhaul of the nation’s tax code has been passed.  On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act. This Act represents one of the most extensive modifications to the U.S. tax code in recent history, significantly modifying U.S. taxation for individuals and business, and significantly increased estate tax life time exclusions.

Estate tax is the tax estates pay the government upon death; when it applies, there is less left over for your heirs. The new federal law has just doubled the amount that you can transfer tax-free, during life or at death. The estate tax exemption for 2018 has increased to $11.2 million (from $5.49 million) for an individual, or $22.4 million for a married couple. This will greatly reduce the number of estates that would be subject to a 40% taxation for exceeding the limit. As of 2018, the annual gift tax exclusion will also increase to $15,000 per individual. Anyone can give another person $15,000 per year without it counting against the lifetime exemption. The gift tax exclusion is for each individual to whom you make a gift, not your total gifts for the year. This means you could gift up to $15,000 to an individual (or multiple individuals) without cutting into the lifetime gift tax exemption. If you’re married you can give a joint gift of up to $30,000 per individual. The federal tax law changes are scheduled to expire after 8 years, and it is possible that significant changes could occur even sooner than that. In 2026, the rates will revert to those in effect in during 2017, adjusted for inflation.

Further, there are also changes in the financial markets that may require additional adjustments. For example, your investments may be valued significantly differently than when you initially crafted your estate plan. A substantial increase or decrease in the value of your estate can require changes to your plan. The acquisition or disposition of a substantial asset can also figure into your estate planning needs. For example, for income tax purposes, the cost basis of inherited assets gets adjusted to the fair market value on the date of the owner’s death. This limits the capital gains tax inheritors must pay if they sell the property.

Tax is a complex area of the law and you should make sure your estate planning documents do not result in any unintended consequences. Thoughtful estate planning often suggests the use of trusts.  Trusts allow for an element of control over assets and their use through distributions. This control may be particularly important when leaving assets to children, especially those from a previous marriage. Trusts can also offer various degrees of protection from divorce and the claims of creditors. This is why expert assistance is crucial!

An estate plan should change with changing circumstances. It is smart to revisit your plan after any changes in your finances, personal life, health or the law. Life is unpredictable and the best that you can do is to ensure that your estate plan accurately reflects and accounts for your current circumstances.

Every individual’s case is unique. There is no time like the present to make sure that you prepare the documents you need to protect your loved ones.

About the Author

Viktoria Beress
Viktoria Beress

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