Most of us are well aware that Congress passed a new tax law. However, the media focus has been on how the law will change income taxes. The law also made changes to estate and gift tax rules, and as with most things, the new law introduces new pros and cons for estate and gift taxes as well as income taxes.
At Bradford & Holliman, some of our clients have laughed thinking that estate planning is irrelevant since the new law doesn’t trigger estate taxes until a person’s estate is over $11.18 million. For many people, the new exemption does eliminate the risk of estate taxes. Likewise, it may eliminate the risk of gift taxes because a person has the ability to use the $11.18 million exemption for lifetime gifts or estate distributions.
There’s a but though . . .
2025 is Closer Than You Realize
But this exemption is scheduled to end on December 31, 2025, which may create gift and estate tax issues for people that are exempt between now and that date. People need to consider the current worth, the estimated value of their estates in 2025, and whether they may have an estate tax problem in 2025 if the estate tax limits are lowered. People also should be aware that a change in the controlling political party in the next may mean yet another change in the tax laws.
How Old is Your Estate Plan?
People with older estate plans – back when the estate tax exemption was $600,000 or $1 million – will especially want to review those plans with an attorney to make sure the language works with new law. In some cases, it may even be possible to simplify the estate plan by eliminating some of the estate tax provisions that were used in the past when the estate tax exemption was much lower.
Social Security and Medicaid Implications
The new tax law does not change the strict Social Security and Medicaid prohibitions against gifting. People trying to plan for long-term care and protect assets are not free to make gifts as they please. The rules against gifting still apply, and these people will continue to need legal help to establish their estate plan if their goal is asset protection.
A Good Estate Plan Addresses Far More than Income Tax Issues
Finally, the new tax law does not change the need for people to make sure their estate is distributed correctly to the people or charities they desire. It also does not lessen the needs for durable powers of attorney, health-care powers of attorney and health-care directives.
It is important to review your estate plan and make certain it is up to date and will still accomplish all of your goals in light of the new tax law and the potential changes in 2025. In fact, since none of us know what the future holds, it’s a good idea to review your estate plan every two to three years.