Estate Planning in the New Tax and Societal Environment: A holistic, yet practical, view of recent changes
Trusts & Estate’s Magazine
Lisa R. Featherngill, Thomas Tietz, & Martin M. Shenkman
Much has already been written about the tax changes made by the Tax Cuts and Jobs Act of 2017 (the Act). Articles have explained how the Act dramatically changed the way practitioners should handle tax and estate planning for many clients. But, the changes to the estate-planning environment are much broader and deeper than merely higher exemptions and the use of non-grantor trusts. Let’s take a holistic, yet practical, view of the recent changes.
Estate planning is evolving in significant ways, and if your clients haven’t updated their planning and documents for the new world of estate planning, the planning likely won’t be as effective as they wish. More than ever before, estate planning is intertwined with income tax planning. While estate planners have been quite conscious of the income tax basis implications of estate plans, the new paradigm implicates a wide range of income tax planning decisions into the estate-planning process. Many, perhaps most, old wills and revocable trust dispositive schemes, especially if based on formula clauses, might not be optimal. They may even pose the danger of causing adverse tax results versus having no planning in place at all.
With the estate tax exemption increased to $10 million inflation adjusted ($11.18 million in 2018), many clients believe they don’t need to asdress their estate planning as they don’t see themselves as having a tax problem. Practitioners may need to educate clients and show why documents that don’t contemplate the dramatic new environment caused by the Act will almost assuredly leave less than an optimal result for the intended heirs. Of importance is educating clients that failing to address robust trust planning now may result in the client incurring greater income taxes each year, even if the client’s estate will never face an estate tax.
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