People are wondering if the new Tax Cuts and Jobs Act (TCJA) portend the end of estate planning as we know it.
Not at all!
Estate tax has been a concern for a small number of clients. With the TCJA of 2017, it will be a concern for even fewer clients. It temporarily doubles the combined gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption, creating new estate planning challenges and opportunities.
Prior to the TCJA, clients had in their hip pockets a coupon, if you will, for up to $5.49MM for an individual and $10.98MM for married couples. What this means is that an individual was able to pass up to $5.49MM when he or she died and a married couple could pass up to $10.98MM when the survivor died.
After the TCJA, an individual can now pass up to $11.2MM and a married couple can pass up to $22MM. These amounts are indexed for inflation and will continue to rise until 2025. The increased coupon amounts will end on January 1, 2026, when they will go back to the $5.49MM amount, but indexed for inflation to 2026.
Per some estimates, the increased exemption amounts will reduce the number of U.S. estates subject to estate tax from approximately 5,000 to around 2,000.
BOOM! If estate tax is no longer a concern . . .
To be sure, proper estate planning can reduce or eliminate the estate tax for clients whose estates are sufficiently large to be affected. But if the estate tax is no longer a concern, then that doesn’t mean that clients shouldn’t still undertake to do planning. Far from it!
Why? Because mental disability can strike at any time, and assuredly we will all die at some point, proper estate planning can eliminate the need for a conservatorship in the event of a mental disability and probate when death comes.
Conservatorship is a legal proceeding where a guardian or a protector is appointed by a judge to manage the financial affairs and/or daily life of another due to physical or mental limitations, or old age. Conservatorship is governed by each individual state's laws.
Probate is the court-supervised process of authenticating a last will and testament if the deceased made one. It includes locating and determining the value of the decedent's assets, paying his final bills and taxes, then distributing the remainder of the estate to his rightful heirs or beneficiaries.
Regardless of the TCJA, proper estate planning is absolutely essential to avoid the time, talent, and treasure that are consumed by conservatorship or probate and ensure family privacy is maintained.