We have noted often over the years that one of the biggest mistakes anyone makes regarding estate planning is failing to keep the living documents up to date. Every time we experience a life change, whether it be a marriage, divorce, death of a child, or some other divergence from the normal flow of things, updating the plan becomes a priority. Too often it doesn’t even make it onto the radar and what results is unwanted pain and expense down the road.
All the examples of life changes provided so far represent events that are internal, but sometimes external changes occur that have implications for estate plans, as well. Many analysts agree that at least some provisions instituted under the recent Tax Cuts and Jobs Act, warrant review, especially as they concern married couples.
A break from tradition
The reason for the concern is this. Previously, estate planning norms suggested creating several trusts upon the death of the first spouse to minimize tax obligations. One is a marital trust under which a fiduciary trustee is named to manage funds on behalf of the surviving spouse and any other heirs of the decedent. The other is a residuary, or credit shelter trust, into which goes any property not directed to a specific beneficiary. The assets in the credit shelter do not pass directly to anyone and are therefore not taxable.
The new law creates conditions under which an exemption of up to $11.2 million dollars can be taken upon the death of the surviving spouse, which effectively eliminates the threat of any estate tax for most couples.
That’s positive news on its face, but the law also includes a sunset provision that calls for that $11.2 million exemption to revert back to $5 million in 2025, barring further Congressional action.
What results is a temporary change of life circumstance that warrants conducting a review of existing estate plans and must serve to frame any new planning done between now and 2025.
Clearly, consulting experienced estate planning counsel is wise.
