Reviewing your estate plan is vital to its health, just like a full physical exam is to your own health.
Many of the "responsible" things we do in life are enjoyable.
For example, very few people love going to the dentist.
Even fewer look forward to medical tests or annual physicals.
If you do, you are in the minority.
According to a recent The Kansas City Star article titled “Talk to estate attorney about impacts of Tax Cuts and Jobs Act,” regular checkups are important when it comes to your estate planning as well.
And with the Tax Cuts and Jobs Act of 2017, it is time for a review.
The federal estate tax exemption doubled, limiting the potential for a taxable estate.
If you had a trust with a formula tied to the former federal tax exemption, it could severely impact your estate plan by triggering some unpleasant unintended consequences.
If you have an estate plan created in 2001 when the exemption was a paltry $675,000, it could have arranged for your children to receive the tax exempt amount and your spouse to receive anything beyond the exemption amount.
If you were to die today, you could unintentionally disinherit your spouse.
The federal estate tax exemption amount is $11.4 million ... per spouse.
Another issue is portability.
Portability was introduced in 2011.
Without portability, bypass (also known as "credit shelter") trusts were helpful tools.
It allowed income to be paid to a spouse upon your death and then have the principal pass your children after the death of your spouse
Folks wanted to maximize the full tax exemption available for the estate of the first spouse.
Now, the "unused exemption" from the estate of the first spouse to die can be added to the estate of the surviving spouse though portability.
Although cost-basis was not addressed in the most recent tax law updates, it is important to consider it in your planning.
A bypass trust could keep your children from benefiting from a second “step-up” in basis.
Because the "basis"of assets is fixed in such a trust based on their value on the date of death of the first spouse to die.
Consequently, any appreciation in value of those very assets during the lifetime of the surviving spouse will not enjoy as new basis as of the death of that spouse.
This could have significant income tax consequences on your heirs.
If it has been a few years since you have reviewed your estate plan, schedule an appointment with your estate planning attorney.
He or she will be able to get your estate plan back into good health.
Reference: The Kansas City Star (February 7, 2019) “Talk to estate attorney about impacts of Tax Cuts and Jobs Act”