The Elderlaw Firm - Dennis Toman - HeadshotDennis Toman

Dennis Toman founded The Elderlaw Firm with a mission of planning and protecting for local families, to be better prepared for elder care and other legal issues for the second half of life. Please call 336-378-1122.

Time to review your estate plan

Under the new tax law, very few estates will pay federal estate tax. But that doesn’t mean you should cross estate planning off your to-do list.

Even though you probably won’t need to worry about estate taxes, you still need to understand the new tax law’s impact on your estate plan.

In December 2017, the new tax law doubled the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. For those few taxable estates, (estimated as about 1,800 decedents in 2018) the tax rate is 40 percent.

For the rest of us, the law will open new opportunities for those in the know, but also create traps for the unwary. Be sure to review your estate plan with your senior estate planning attorney to consider important updates.

Example: Unintended Consequences. Consider this example: Fred and Jane completed their estate plan in 2001, when the federal estate-tax exemption was $675,000. Their wills and trusts allocate to their children the amount that can pass free from federal estate tax, and everything else goes to the surviving spouse.

If Fred died in 2001 Jane would have received everything over $675,000. But under the new tax law the children would receive nearly everything, unintentionally disinheriting Jane. This can be particularly important in blended families.

Example: Unnecessary Capital Gains Taxes. Missed opportunities to save capital gains taxes are another key consideration. Don and Sue’s estate plan set up trusts for each other and for their children, to save estate taxes. When Sue died, her appreciated stocks and real estate avoided estate taxes as planned … but her plan was never updated to make sure the property could be sold later without extra capital gains taxes.

Sue could have taken better advantage of the “stepped up basis” rules to obtain more stepped up basis at Sue’s death, which would have reduced their income taxes later. Be sure to work with a senior estate planning attorney who focuses on the “income tax” aspects of estate planning.

Naturally, there are key changes that affect unmarried people, as well as married couples. And many factors besides taxes make estate planning so important, including creditor protection, defending against elder financial abuse, and protecting your legacy for children or charities.

It’s always a good idea to review your estate plan regularly. Regardless of legislative changes, over time lots can happen: Your net worth changes; you or your children get married or divorced; grandchildren are born; you start worrying more about Alzheimer’s; and more. Very likely your old documents need to be updated. Rather than minimizing the need for estate planning, the new tax law should light a fire under seniors who haven’t reviewed their documents in years.

Consider the tax law one more reason why it’s a good idea to build a relationship with a trusted estate planning attorney who takes the long view and stays in touch with you over time.