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Secure Your Future, Review Your Estate Plan

Secure Your Future, Review Your Estate Plan

August 21, 2019 | Read Time: 4 Minutes

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The Tax Cuts and Jobs Act of 2017 (the TCJA) included a substantial increase in the federal estate tax exclusion. The relatively new tax law is even more reason to review any estate planning you have done. However, it is important not to simply undo prior planning, as many aspects of these new laws are set to return to pre-2018 laws at the end of 2025.

The sharp increase in the federal estate tax exclusion, $11.4 million per person for 2019, has left some people thinking estate planning is not as important anymore. This is a very dangerous assumption since the exclusion is slated to return to only $5 million (inflation-indexed) at the end of 2025.

Given this uncertainty, an individual may want to plan accordingly. Therefore, Huberty advisors have examined several key estate planning considerations that we will detail here!

Review Trust Funding Strategies For Death of First Spouse

Prior to the TJCA, many estate plans included “credit shelter trust” strategies which allow married couples to take full advantage of state and federal estate tax exclusions. This trust strategy is often structured so that upon the passing of the first spouse, specified assets (often a dollar value up to the federal estate tax exclusion) pass to the credit shelter trust. These assets then flow to the surviving spouse. However, unfortunately due to the nature of the trust, the surviving spouse never actually owns or takes control of the assets. Therefore, the trust assets are not included in the surviving spouse's taxable estate.

For an estate smaller than the new federal estate tax exclusion amount ($11.4 million for 2019), such a strategy has the potential to transfer the entire estate to the credit shelter trust. This could limit the surviving spouse's flexibility and direct access to the funds.

Maximize A Spouse's Unused Exclusion Amount

Portability, a concept introduced in 2010, means that if one spouse dies and does not make full use of their federal estate tax exclusion, the surviving spouse can make an election to add any unused federal estate tax exclusion from the first spouse to their exclusion amount. If the first spouse dies before the last day of 2025, while the federal estate tax exclusion amount is still $11.4 million (inflation-indexed), the portability election should leave the surviving spouse with the deceased spouse's unused federal estate tax exclusion of that full amount even when the basic exclusion amount decreases at the end of 2025.

Think Twice Before Undoing Prior Planning

The uncertainty surrounding what could occur after 2025 suggests individuals should exercise caution when it comes to undoing any prior planning since the doubling of the federal estate tax exclusion amount is set to last only eight years.

Consider Upstream Gifts Of Low-Cost-Basis Assets

Individuals whose parents do not have federal estate tax concerns (even if they live past 2025) may be able to make gifts of low-cost-basis assets to their parents in hopes of getting a step-up in cost-basis upon their parents' passing. The assets would then be transferred to children or other beneficiaries without built-in capital gains. (Note that steps should be taken to protect against potential negative tax consequences in case of death within one year of the gift.)

As always, Huberty's financial experts are ready and able to discuss any necessary changes needed and their effects on your finances. Call or stop into our accounting firm today to learn more about new laws concerning the current or future state of your estate plan.