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Now that the “Tax Cuts and Jobs Act” (TCJA) is the law of the land, many people will be affected by the changes to the federal estate tax laws. Before the new policy, unless your estate was valued at more than $5.43 million — or $10.86 million for a married couple — you’d be exempt from federal estate taxes. Now, these amounts are doubled, meaning that estate tax exemptions are at $11.2 million for each individual. While this is certain to drastically reduce the number of people subject to federal estate taxes, there are still several reasons to consider going over your estate plan. Here are just a few realistic reasons to take another look at your estate plan this tax season.
First, trusts are a smart idea to consider incorporating into your estate plan if you truly want to have all your bases covered. A trust increases control over certain assets and how they’re used through subsequent distributions. According to Pew Research Center, most Americans (83%) ages 65 and older say they have grandchildren, and this increased control may be especially important when passing assets down to children, someone who is disabled, someone who has an addiction or financial issues, and other circumstances. In addition, a trust provides a wide range of levels of protection when it comes to divorce and claims from creditors and predators. There are many different types of trusts, and they’re either intra vivos, arranged during your lifetime, or testamentary, and controlled by state law and after the grantor passes.
Part of the changes brought on by the TCJA affect the way gift taxes work, as well. In fact, these changes are considered among the largest in the lifetime exemption.
“Along with the doubling of the individual estate tax exemption, the ability to make lifetime gifts has also doubled. In absolute dollars, never has there been such a large increase in the lifetime exemption. Gifting is complicated. Just because one can increase lifetime gifts, doesn’t mean they should. Gifting has many tax savings opportunities, but can also create complications from the impact of the gifts on the recipient. When there is both the ability and intention to gift, careful consideration should be made as to timing and whether gifts are made outright or in trust,” writes Rob Clarfeld on Forbes.
Corporate income taxes comprise about 11% of the taxes collected by the federal government, and for quite some time, estate planners had a primary goal of titling assets for married couple in order to make sure the first to pass would be able to take full advantage of their lifetime tax credit. However, a few years back, the concept of ‘portability’ in regards to the tax law went into effect. This provides the opportunity for any unused credits from the first decedent to take effect toward the benefit of the surviving spouse.
By 2030, older adults (seniors) will account for roughly 20% of the U.S. population. Taking the time to make sure your estate plan is well organized is the key to ensuring a smooth transition for your family for your passing. Don’t hesitate to meet with a qualified estate planner to ensure that all of your assets are accounted for.