The following is a blog version of a client newsletter that will be mailed to all of our 1,900+ estate planning clients in the next 7-10 days. That newsletter contains a helpful table that is omitted from this post, but I think you'll still get the gist of the content. One additional introductory note--like all material on this site, this is general information and not a substitute for real legal advice. If you want legal advice specific to your situation, you need to contact me, or, if you so choose, another attorney.
BIG TAX NEWS: Congress finally passed significant tax reform yesterday, on December 20, 2017. The law (the Tax Cuts and Jobs Act of 2017) will make some major changes to business taxes and individual taxes. The purpose of this post is to focus on the estate tax changes, and let you know how these changes might affect you.
THE BASICS: The new law will increase the estate tax exemption to $11.2 million for individuals and $22.4 million for married couples who take advantage of portability (so if a spouse leaves all of his or her assets to a surviving spouse, the surviving spouse can basically double his or her exemption). The exemption will increase with inflation, and "sunsets" at the end of 2025. The tax rate on assets above the exemption will remain at a flat 40%.
WHAT IT MEANS TO YOU: The increased exemption is great news, but it likely warrants an update to your estate plan. At the risk of oversimplifying matters, here is a quick summary of how the change will impact our clients (NOTE--if you're not a client, you may not have the same tax planning in your existing documents, so this summary may not apply to you):
If you are…then…
single and under $3,000,000...your estate plan is unlikely to be affected
single and over $3,000,000...there's probably not much to do, but any charitable distributions should be revisited
widowed and the beneficiary of an irrevocable trust...we should talk about that trust immediately
married and under $5,000,000...we should talk this year, as the tax planning in your documents should be revisited, and your documents can likely be simplified
married and over $5,000,000...we should talk this year, but the tax planning in your documents is likely still prudent
As to why we need to talk with many of our clients, if you are a married couple planning to fund a trust at the first death, or widowed and the beneficiary of an irrevocable trust, your beneficiaries could face easily avoidable capital gains taxes if you do not update your estate plan. In some cases, not updating your documents can cost your beneficiaries tens of thousands of dollars in capital gains taxes.
If you think an update to your estate plan is in order, it is important that you contact an attorney. I would be happy to help you bring your documents up-to-date, but we are not responsible if prior planning, while great at the time, is no longer appropriate given the changes in tax law. If you want to reach me, I am accessible via email at firstname.lastname@example.org or phone at 614-792-7900. The email or call is absolutely free, and from there, we can go over the options and costs.
As a final note, the increase in the estate tax exemption does not eliminate the need for estate planning or the value of your trust. There are many important reasons to have an estate plan in place, aside from reducing estate taxes. And if you have a trust, you will still want that trust, whether due to protection from creditors, management of assets you leave to beneficiaries, help with probate avoidance, or the flexibility to change beneficiaries or distributions over time.