Most of the media focus regarding the new tax law Congress passed has been on how the law will change income taxes. The law also made changes to estate and gift tax rules. As with most things, there are pros and cons to the new law.
The general reader may laugh and think estate planning is irrelevant once they understand that, under the new law, a person’s estate must be over $11.18 million before their estate will pay estate taxes. 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 can use the $11.18 million exemption for lifetime gifts or estate distributions. However, this exemption is scheduled to end December 31, 2025, which may create gift and estate tax issues for people that are exempt between now and then. 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 may mean another change in the tax laws.
People with older estate plans will want to review those plans with an attorney to make sure the language works with current law. In some cases, it may even be possible to simplify the estate plan and eliminate some of the estate tax provisions that were used in the past when the estate tax exemption was much lower. People with estate plans from the time period when the estate tax exemption was $600,000 or $1 million are especially needful of plan revisions.
The new tax law does not change the strict prohibitions against gifting of Social Security and Medicaid. 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. Also, 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 and does not lessen the need 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 able to accomplish all your goals.
–Melanie Bradford Holliman
Partner, Bradford & Holliman, LLC
Practice focuses on estate planning, elder law and special needs trust.
2491 Pelham Parkway, Pelham, Ala. 35124
This article is for educational purposes and is not intended for specific legal advice.