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The New Tax Law Means It's Time Review Your Estate Plan
- September 13th, 2018
While the new tax law doubles the federal estate tax exemption, meaning the vast majority of estates will not have to pay any federal estate tax, it doesn't mean you should ignore its impact on your estate plan.
In December 2017, Republicans in Congress and President Trump doubled the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. The tax rate for those few estates subject to taxation is 40 percent.
Local Elder Law Attorneys in Ashburn, VA
Margaret A. O'Reilly, PC
Margaret A. O’Reilly is an estate planning and elder law attorney with over thirty-five years of legal experience. Attorney O’Reilly graduated from Duke University with a degree in psychology, and received her law degree from Northeastern University School of Law in Boston, Massachusetts. For over 15 y...
Hale Ball Carlson Baumgartner Murphy PLC
Jean Galloway Ball is certified in Elder Law by the National Elder Law Foundation. She is a 1977 honors graduate of the National Law Center, George Washington University, and she did her undergraduate work at the University of California at Berkeley, graduating Phi Beta Kappa in 1971. She is admitted to practice in Vir...
Needham Mitnick & Pollack, PLC
Judith Mtinick is well known for acting as a guardian, conservator, trustee or agent on behalf of clients or by court appointment. This experience gives her a wide perspective and extensive practical knowledge that she uses when advising clients in drafting their planning documents. Her experience, as a court appointed...
While most estates won't be subject to the federal estate tax, you should review your estate plan to make sure the changes won't have other negative consequences or to see if there is a better way to pass on your assets. For example, one common estate planning technique when the estate tax exemption was smaller was to leave everything that could pass free of the estate tax to the decedent's children and the rest to the spouse. If you still have that provision in your will, your kids could inherit your entire estate while your spouse would be disinherited.
For example, as recently as 2001 the federal estate tax exemption was a mere $675,000. Someone with, say, an $800,000 estate who hasn’t changed their estate plan since then could see the entire estate go to their children and none to their spouse.
Another consideration is how the new tax law might affect capital gains taxes. When someone inherits property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If the beneficiary were to sell the property, there could be huge capital gains taxes. Fortunately, when someone inherits property, the property’s tax basis is "stepped up," which means the tax basis would be the current value of the property. If the same property is gifted, there is no "step up" in basis, so the gift recipient would have to pay capital gains taxes. Previously, in order to avoid the estate tax you might have given property to your children or to a trust, even though there would be capital gains consequences. Now, it might be better for your beneficiaries to inherit the property.
In addition, many states have their own estate tax laws with much lower exemptions, so it is important to consult with your attorney to make sure your estate plan still works for you.
Last Modified: 09/13/2018