The Tax Cuts and Jobs Act of 2017 increased the Federal estate and gift tax exemption to $11.2 million. This means that individuals with $11.2 million and married couples with $22.4 million will not be subject to Federal estate taxes at their death. Nonetheless, even for those of us who will likely never have such substantial wealth, it is still essential to have in place a high quality Estate Plan. The following are three important reasons.
- State estate tax laws remain in place. Massachusetts (and thirteen other states plus the District of Columbia) still impose a state estate tax. In 2018, the Massachusetts estate tax exemption is $1 million and the top estate tax rate is 16%. The Massachusetts estate tax is unlikely to change substantially in the near future. Massachusetts estate taxes can be substantial and failing to plan for them is a mistake.
- The Federal tax laws may change. A future Democratic Congress may amend the new tax law and reduce the Federal exemption back to the 2017 level ($5.49 million per individual) or even lower. For this reason, it is important to have in place a flexible estate plan with estate tax planning provisions that are designed to minimize or eliminate both state and Federal estate taxes, regardless of the specifics of the existing law.
- Estate taxes are not the only reason to have a good Estate Plan. There are lots of reasons – other than estate tax planning – to have in place a high quality estate plan. Estate planning is essential to ensure that all family members are provided for properly. This includes minor children, disabled adults, second spouses, adult children likely to divorce, adult children with unique needs or lifestyles, spendthrifts, and more. More complex planning is also required for those who own family businesses or unique assets. In addition, a good estate plan simplifies the process of estate administration and may avoid unnecessary delays, costs, and family conflict. Finally, an estate plan can ensure that your assets can be managed properly for your benefit during you lifetime if you become incapacitated.
The change in the Federal tax laws may change the nature of estate planning and may even create new opportunities for planning. But it does not eliminate the need for planning. We intend to offer more advice on this in future months. Stay tuned!