Tag: Plan it Forward

The New Federal Tax Law Offers Plenty of Reasons to Update Your Estate Plan

When Congress passed the Tax Cuts and Jobs Act, lawmakers included a huge increase in the federal estate tax exemption. It now stands at $11.2 million through 2025, adjusted for inflation. That enormous sum might tempt some seniors to put their estate planning on the back burner, as if they’re now exempt from estate planning unless they have $11.2 million in the bank. This, however, could be a mistake.

 

First, it’s always a good idea to review your estate plan, regardless of whether federal or state tax laws change. A marriage, a death in the family, or the birth of a grandchild are just a few other reasons to revamp your plan, not to mention if you’ve changed your mind since you last addressed your estate documents. There is also no better time to get started than the beginning of a new year.

 

That said, wills and trusts are a good place to start. It’s not uncommon for wills and trusts to have inheritance structures tied to the federal exemption limit. If they were established years ago when the exemption limit was much, much smaller, then a major problem could be in the works. Since the IRS automatically exempts spouses from the estate tax, children are routinely set up to inherit the maximum amount allowed under estate laws, with the deceased’s spouse getting the rest. But with such a huge new federal exemption, if the will or trust isn’t updated then the children of the deceased could inherit everything up to the new limit, effectively disinheriting the spouse.

 

That may be an extreme scenario, but it’s one of many concerns that should light a fire under seniors to update their plans with a trusted estate planning attorney. It’s critically important to craft a legally sound plan to ensure your final wishes are followed, and your loved ones are supported through your lifelong work.

 

When updating your will or trust documents, it will also be important to update other estate planning items, such as a durable power of attorney. This gives someone else the authority to act on your behalf in the event you become mentally incapacitated. If this includes the ability to make financial gifts to avoid reaching any previous estate tax limits, then it may need to change. Updating your power of attorney could eliminate the potential for senior financial abuse.

 

If this article raises more questions that it answers for you, please let us know. We are here to help you and your loved ones both now and in the future. Do not wait to contact us with your questions.