Why Estate Planning Still Matters
You may have heard that the Tax Cuts and Jobs Act raised the shared Federal Estate Tax Exemption level to over $22 million for a married couple. It is estimated that this increase will reduce the number of estates subject to Federal Estate Tax in 2018 from 5,500 to only 1,700, which represents approximately only 0.1% of the estates to be filed in 2018.
With such a high exemption amount, worrying about the Federal Estate Tax is essentially off the table for almost every family in the U.S. So, you might be saying to yourself, “I’m nowhere near that number. Why should I bother seeking professional help with planning my estate?” Turns out, there is an abundance of reasons to still do estate planning, many of which are just as important, if not more so, as any potential tax issues that are no longer on the radar.
Protecting Your Heirs From Themselves
I often hear from clients that they trust their kids and do not want to tie their hands by leaving them money in trust. However, what they might not be thinking about is whether they would trust their grandchildren with that amount of money. If, heaven forbid, you and your child pass away in the same accident, all of a sudden a 21-year-old grandchild could be receiving their share of the inheritance, with no strings attached. Even with a trust in place, your money can be distributed outright to your living children, but with limitations should that money end up going to the grandkids.
State Estate Tax
Currently 12 states and the District of Columbia have separate state level estate taxes, some of which are as low as $1 million. So while you may be significantly under the $22 million Federal exemption, you are not necessarily in the free and clear. Early planning around the transfer of your assets can allow for a more tax efficient result, meaning more dollars where you want them to go.
If you die intestate – that is, without a will – your estate will most likely go through the process of probate. During this process, the court will distribute your assets according to that state’s succession laws, all of which will now become public record, and most likely attorney’s fees will be necessary. Having a trust in place beforehand will ensure that your assets pass according to your exact intentions and keep the amounts and their direction private.
Estate Planning Still Relevant
These are just a few of the numerous reasons proper estate planning remains vital regardless of the Federal Estate Tax Exemption amount, and would remain so even if the Federal Estate Tax was repealed in its entirety. If you haven’t begun planning your estate, there is no better time to start than now. Like so many other aspects of our lives, an ounce of prevention is worth a pound of cure.