ESTATE PLANNING – Time to Review Your Estate Plan

As a result of the newly passed Tax Act, there has been a paradigm shift in estate planning. Beginning in 2018, the estate and gift tax exclusion amounts are increased to $22 million per couple ($11 million per person), twice what it was in 2017.  This is a profound change that renders estate and gift taxes to a smaller group of taxpayers.  Despite this change, it is more important than ever to have an estate plan in place, even if your estate is below the exclusion amount.  Not doing so can result in unintended consequences that may cost you and your heirs hard earned money.

Further, if you already have an existing estate plan, we encourage you to revisit your plan to ensure that it will still be administered as intended.  One negative consequence of not doing so in light of the tax reform is the possibility of overfunding a decedent’s trust (also referred to as a bypass trust, a credit shelter trust, and an exemption trust) and inadvertently disinheriting the surviving spouse!   In other situations, improper planning can result in income tax implications that otherwise could have been sheltered through the use of portability and tax basis step-ups (i.e., “double step-up”).

If you do not have an estate plan, don’t let the tax tail wag the money dog.  Even with many estates falling below the taxable estate threshold and the ease of relying on the portability rules (i.e., the ability for surviving spouse to use a deceased spouse’s unused estate tax exclusion), estate planning is still crucial to protecting your financial legacy from probate, lawsuits, creditor claims, divorces, and a many other events that can financially hurt your family.  Careful consideration must be given to balance the costs/benefits of portability vs. decedent’s trust strategies depending on the dynamics of your family.  By being proactive with your estate plan, there are ways to combine the best of both worlds through the use of qualified terminable interest property (QTIP) and disclaimer rules.

Please call David Yoo at 949.222.2999 to have your estate plan reviewed and to avoid any unintended tax consequences.