Unless you were living under a rock, you most likely heard about the tax reform bill that was passed by Congress and signed by the President over the holidays. One big change that came out of it was the doubling of the exemption amount for federal estate, gift, and generation-skipping transfer taxes.
Beginning in 2018, the exemption for federal estate, gift, and generation-skipping taxes increased from a $5 million base to $10 million. That amount was annually adjusted for inflation which makes the exemption $11.2 million, or $22.4 million for a married couple in 2018. This means that you can pass down a total of $11.2 million (or $22.4 million if you’re married) to heirs without incurring any federal estate taxes.
Of course, planning to minimize or avoid estate taxes has always been a traditional benefit of estate planning. If taxes were your primary concern, you may be thinking that you can now neglect planning in light of these legislative changes. But, that would be a mistake.
Estate planning is about much more than avoiding taxes. Good estate planning will ensure that your financial and medical wishes are followed if you become incapacitated and when you pass away. Estate planning further allows you to direct how your assets are divided and to whom they should pass. Also, if you have minor children, you can select who you want to care for them if you die, rather than leaving the determination to a judge who doesn’t know you or your family and who may have multiple individuals arguing over who should fill that role.
It is critical to note that the new estate tax exemption only lasts for a set number of years. After 2025, under the terms of the act, the exemption would revert back to the $5 million base. Further, the next presidential election could roll it back even more. If you have accumulated sufficient wealth, you should consider making gifts before the sunset provision takes effect after 2025 – or earlier, depending on the next election cycle.
For New York residents we still have our own estate tax that needs to be reviewed in light of your family wealth and in light of the changes to the income tax regime we are strongly recommending that our clients review their planning, especially business owners who may benefit from an entity change or restructuring. So, rather than the tax law changes lessening the need to plan, there are plenty of important issues that require an experienced Finger Lakes estate planning attorney.
The doubling of the estate exemption was historic. There’s really no precedent, so we can’t look to the past for clues about what will happen next. The important thing to remember is that the pendulum can easily swing the other way, and it is critical that you are prepared for that possibility. Rather than live with uncertainty, schedule a review meeting and talk to one of our knowledgeable Finger Lakes area estate planning attorneys about how to best plan for the state of your affairs both now and in the future. If you would like to schedule your planning session call (585) 232-5300 and be sure to mention whether you prefer to visit our Rochester, Newark or Canandaigua office.