The Difference Between Having A Will And A True Estate Plan
Under the new tax law, you will definitely want to know the difference between a will, be it simple or complicated, and true estate planning.
In many cases a will just won’t cut it.
While it is true that under the new tax law most taxpayers “will never pay a federal estate tax,” with the expanded exemption there are a multitude of reasons for establishing a true estate plan. Not understanding the differences could be devastating for your beneficiaries.
Most people will be lulled into complacency due to the fact that estate tax exemptions have been doubled to roughly $11.2 million per person. So, for a couple, the exemption will be $22.4 million until 2026 when it reverts back to the current $5 million per person. But don’t let that be your guiding principle. After all estate planning has never been just about taxes.
Dangerous Estate Planning Generalizations After New Tax Law
We all love it when life can be simple. Some people may believe that they can get away with a short simple will since they will consider the estate tax to be irrelevant. But, do keep in mind that simple wills do not include flexible trusts to protect surviving spouses and children from creditors and predators. Wills also do not include protections for later life and aging that a robust revocable trust does. You must know that real planning is needed.
Review Current Wills And Estate Plans In Light Of New Law
It’s definitely time to review and rework outdated wills and seek the help of an estate planning attorney to make sure you are protecting your assets for your later life and your beneficiaries. I’ve included a few areas of concern for taxpayers to consider when reviewing current wills and trusts and engaging in further estate planning.
Trusts can provide protection from creditors and divorcing spouses and provide control over how beneficiaries inherit wealth. Families with mental illness and addiction considerations will find trusts to be invaluable. Trusts have and will continue to help preserve wealth for generations.
Some sources suggest that every irrevocable trust should be reviewed. I agree since many old life insurance trusts were intended to pay an estate tax when the exemption was $1 million. You’ll need to find out if, under the current law, that plan still makes sense. You might also need to discover if there are new purposes the old trust might now serve, or how the old plan can be modified.
Annual Exclusion Gifts
You will also want to consider whether making gifts during your lifetime is the right tax planning strategy. The gift tax annual exclusion amount is $15,000 and the annual exclusion amount remains subject to an inflation adjustment.
Step-up In Tax Cost At Death
The step-up in tax cost by which a decedent’s assets obtain a step-up in their tax cost to their fair market value at the date of death, is not changed. This along a much higher federal estate tax exemption make income tax planning a much more important element in estate planning and estate administration.
The new tax law is still being studied and more changes are to be expected. However, the basics outlined above are not likely to change and can be used to help you review your current will or estate planning strategies and to ensure that your assets and beneficiaries are being protected. If you would like a review of your will or estate plan, call The Estate & Asset Protection Law Firm for a consultation.