One of the highly publicized details of the tax bill signed into law last year was the change to estate taxes. Specifically, the exemption amount doubled.
What does that mean? It means that limit is higher - that unless a married couple has over $22 million in assets, the inheritance left to loved ones won't be subject to inheritance tax. It's good news for anyone worried that their heirs would be stuck with a hard-to-pay tax bill alongside their inheritance. The downside is that many people think they don't need a proper estate plan now that the law has changed.
Setting clear intentions
This viewpoint misses the primary goal of an estate plan, which is to provide security. An estate plan isn't just about maximizing value, it's about efficiency and making sure that ownership transitions truly meet the deceased's intentions. It's to avoid pitting families and friends against each other as they argue about what you really would have wanted.
Even with higher tax exemptions, it's important to create estate plans that protect assets and clearly define who will take over property.
Making your decisions stick
Experts fear that people will see the change and skip estate planning, thinking about money saved instead of about key life decisions. An estate plan is necessary for many reasons, not just navigating financial matters. Benefits include health care decision-making rights, providing easier transition of property to beneficiaries and heirs, to make sure that estranged family members do not interfere and that special needs children will get the care they require throughout their lifetime.
Life changes and tax law changes
Anyone with an existing plan that utilizes trusts to work around pre-2018 tax laws may want to revisit their arrangement. There may be a more direct way to move assets under the new law. The new tax law should be viewed like a life change. Anytime somebody experiences a significant change, it's important to revisit previous arrangements. Like a marriage, adoption, death of a family member or sudden change in financial status, the new tax law should inspire people to take another look at their assets and consider how they'd like them to be distributed after their passing.
Estate plans are a way to protect property, and also a way to protect your loved ones from unnecessary probate challenges. The new tax law has changed some key elements in how an estate plan will work, but it doesn't change the goal. And, while it will benefit many people, it's only valid until 2025: another reminder that, as life changes, estate plans need to change too.