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Money June 2018

Dollar Sense

Is Estate Planning Irrelevant Since the New Tax Law Passed?

By Teresa Ambord

The bottom line is, things are changing so don’t roll the dice by failing to pull out whatever insurance policies and trusts you have in place to make sure they still protect you and represent how you want to protect your assets and your beneficiaries.

With the new estate/gift tax exemptions at a record high — $11.18 million for an individual and $22.36 million for a married couple — you might think you have no need for an estate planner. Think again. You may not have to decide who gets your money, or work to reduce your taxable estate. But no matter how high the exemption goes, that alone doesn’t begin to resolve all the estate planning issues that taxpayers face.

If you have a will, you’re doing better than most. As of 2017, only 41% of Americans had estate planning documents in place, according to a study published in Caring.com. But if you’re married and/or have children, you’ll need a flexible trust to protect them from creditors and predators.

 

Winds of Change

The record-high estate tax exemption may seem comforting, but it could expire after 2025 depending on which party is in the White House and holds Congress. If that happens, the exemption could fall back to roughly $5 million. Five million may still sound like a lot (it does to me!) but if you have a family business or a large amount of property, your heirs could find themselves selling those assets just to pay the estate tax (currently 40%).

If you remember, George W. Bush wanted to repeal the estate tax completely, and he did, for one year (2010) before existing law revived it. The Obama administration proposed reducing the exemption to $2.5 million, which didn’t happen, and experts say is unlike in the future. But as leadership in the Oval Office changes, nothing can be taken for granted.

The bottom line is, things are changing so don’t roll the dice by failing to pull out whatever insurance policies and trusts you have in place to make sure they still protect you and represent how you want to protect your assets and your beneficiaries. If your life insurance trusts were established when the estate tax exemption was $1 million, do they still make sense for what you have planned? If the trust has been around for a while, you may no longer remember what it involves. In more than 20 states an old trust can be merged into a new trust (called “decanting”), which can make it easier to update the provisions of an old trust and repurpose it if that’s your goal.

 

Are the Choices You Made the Same Choices You’d Make Today?

While you’re reviewing old documents with your financial planner, take another look at the beneficiaries you’ve chosen. This includes insurance policies, retirement plans, payable on death or transferable on death bank accounts, and any other plan with a beneficiary. If life changes (divorce, remarriage, death of a loved one, additions to the family, estrangement from a previously named beneficiary) have caused a change of heart, change the beneficiary while you can.

With the new estate exemption is also a matching gift exemption, of $11.18 million for an individual or $22.36 million for a married couple. The annual gift amount is $15,000. If your elderly loved one has given a durable power of attorney (POA) to someone, it’s a good idea to review that choice. The ultra-high gift exemption can be misused by an unscrupulous POA agent if that person has the right to make gifts. What can you do? With the elder, talk to his/her estate planning attorney about updating the power of attorney with a provision that maintains some control over gifts.

 

No Time to Waste

Whatever you do, don’t put off these critical tasks. Not just for your elderly relatives and friends, but for yourself. If you’re 50 or 60-something and helping your 85-year-old mom make decisions, you may feel young and invulnerable. Common sense tells us, that’s a nice thought, but unrealistic. Contact your trusted advisors while there’s time. And while you’re at it, make sure the advisor is knowledgeable.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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