Estate Planning After The New Tax Law
Estate Planning After The New Tax Law
In response to recent changes in estate tax law, many Americans are wondering whether it’s time to update their own estate plans.
The truth is that a well-thought-out estate plan is an essential part of any financial strategy and one of the most compassionate things you can do for your loved ones — regardless of your own personal wealth or income tax bracket.
In addition to lowering tax rates and scaling back or eliminating several key deductions, the tax plan that was signed into law in December 2017 makes some important changes to the estate tax which will affect high net worth households.
- The federal estate tax exemption is now $11.18 million for an individual, and $22.36 million for a married couple.
- As a result of the increased exemption, the federal estate tax now applies to only 2 of every 1,000 Americans.
- The law temporarily doubles the estate, gift and GST tax exemption from $5 million to $10 million.
- The exemptions will expire on January 1, 2026.1
Let’s take a look at why estate planning is important no matter how much money you make or the value of your assets. We’ll also review some things to consider when developing your own estate plan — whether you’re establishing one for the first time or reassessing things in response to policy changes.
Why is estate planning important?
Probate is a legal process in which a court makes important decisions about your estate — such as who gets what — after you pass away.
If you don’t have an estate plan, a judge — and not you — will determine…
- The value of your property
- How your outstanding debts will be paid
- Distribution of your property to survivors
- Guardianship of your minor children
Probate is a complex and often lengthy process that typically lasts over a year. It can be very expensive, inconvenient and emotionally draining for survivors.
What should be included in your estate plan?
No two estate plans are alike.
Your assets and the needs of your loved ones are unique, so it’s important to work with a qualified financial advisor and estate planning attorney to develop an estate plan that works for your situation. If you are in the Springfield, MO area, join us at the Resource Center for a comprehensive and collaborative once-a-month “Estate Planning Basics” session with attorney Will Worsham.
Here are a few things you’ll want to consider.
- Trusts. A trust is a legal agreement you create to provide for your designated beneficiaries, which are people or organizations who will receive the funds in the trust. It will be managed by a trustee, which is a person or organization you select when creating the agreement.2 It can be used to provide for loved ones after you pass away, minimize estate tax exposure and avoid probate. It can also be used to support charitable causes.
- Last Will and Testament. Your will can determine what happens to your money, property and other assets after you pass away. You can also make arrangements for guardianship of your minor children.
- IRA Legacy Planning. What happens if you pass away without using all of your IRA funds? You can establish an IRA legacy plan to provide a steady source of income to your beneficiaries, while reducing their estate tax burden and leaving the balance for tax-deferred growth.
- Power of Attorney. What happens if you develop dementia, have a stroke, or suffer injuries that leave you unconscious or unable to communicate or make decisions while you’re still alive? Similar to dying without a will, if you become incapacitated without planning ahead, the state will make important decisions about things like medical care and management of your finances.
- Creating a healthcare power of attorney lets you designate someone ahead of time, who will be authorized to make medical decisions on your behalf if you are unable to do so on your own.
- A financial power of attorney means you have selected someone to manage your financial affairs in accordance with your wishes in case of legal incapacity.3
- Digital Asset Planning. Think of all the online accounts you have. This includes your online banking and credit card services, as well as your social media profiles. Your digital accounts are mostly non-transferable on death — unless you address this issue in your estate plan. Appoint a trusted individual — called a fiduciary — who will be authorized to access and manage your accounts on your behalf.4
Do you need to establish a new estate plan? Are you looking to update an existing one?
1 – Matz, Kevin. Wealth Management. February 26, 2018. Increased exemption amounts: Use them or lose them? http://www.wealthmanagement.com/estate-planning/increased-exemption-amounts-use-them-or-lose-them. Accessed on March 11, 2018.
2 – Garber, Julie. The Balance. October 11, 2017. A beginner’s guide to trusts. https://www.thebalance.com/what-is-the-definition-of-a-trust-3505391. Accessed on March 11, 2018.
3 – Lindsay, Christopher. Estate Planning and Elder Law Services. February 13, 2018. Why you shouldn’t keep your estate plan (too) simple. https://www.formyplan.com/estate-planning/2018/02/13/simple-estate-planning/. Accessed on March 11, 2018.
4 – Iacurci, Greg. Investment News. October 28, 2017. 8 top tax and estate planning tips. http://www.investmentnews.com/article/20171028/FREE/171029948/8-top-tax-and-estate-planning-tips. Accessed on March 11, 2018.
We are not permitted to offer, and no statement contained herein shall constitute, tax or legal advice. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. We are able to provide you with information but not guidance or advice related to federal benefits. Our firm is not affiliated with the U.S. government or any governmental agency. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and The Resource Center are not affiliated companies. AW03182181.