Time for Your End of Year Estate Plan Review

It’s the end of the year, time to review your estate planning documents to account for the increased estate tax exemption.

The end of a year and the start of a new year is always a good time to review your estate planning documents to make sure they still meet your wishes, and to determine if any new laws affect them.

One of the biggest law changes that affect individuals is the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act, which took effect in 2018, significantly increased the gift/estate tax exemption and generation-skipping transfer (“GST”) tax exemption amounts from $5,000,000 to where it currently is at $11,400,000, and is scheduled to increase to $11,580,000 in 2020 (this amount is per individual, and doubled for married couples). The temporary increase in exemption amounts is set to sunset on December 31, 2025, at which time the exemptions are scheduled to revert back to $5,000,000 (indexed for inflation).

If your documents were executed, or last updated, prior to 2018 and contain formula gifts at death based on their unused gift/estate tax exemption, then the increase in exemptions could result in an unintended or unfavorable distribution of assets.  For example, assume that an individual had their current estate planning documents executed in 2001 when the gift/estate tax exemption was $675,000.  Assume further that this individual provided a formula amount equal to their remaining gift/estate tax exemption to be distributed to their children and the balance of their assets to be held in a marital trust for their spouse.  If the individual were to die in 2019, then $11,400,000, reduced by any prior gift/estate tax exemption used in respect to lifetime gifts, would be distributed to the children potentially leaving no assets for the marital trust for their spouse.  This result can easily be avoided by reviewing current documents and making necessary revisions.

The increased exemption amounts are a political issue, so it is possible that the temporary increase in the exemptions could be terminated prior to 2026 or that the increase could be made permanent prior to 2026.  The President’s Fiscal Year 2020 Budget Proposal contains a proposal to make the increased exemption amounts permanent. If you are lucky enough to fall into the over $5,000,000 crowd (or double that for married couples), there are many planning strategies that we can look at in order to decrease the tax burden on your estate and children before they expire in the next few years. Please contact your Wood + Lamping attorney to discuss any changes you may need to your estate plan.

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  • About the Author

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    Ronald Zmuda

    Ronald Zmuda practices primarily in the areas of Estate Planning, Probate Administration, Medicaid Planning, and Tax law – typically working with individuals on their tax and estate planning needs as well as any significant business and real estate interests. Ron helps his clients structure assets and investments by balancing what is the most tax advantageous with their personal goals and charitable wishes.

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