Bay Area Estate Planning Attorney: Learn Why the New Federal Estate Tax Exemption Doesn’t Give You an Estate Planning “Pass”

Unless you were living under a rock, you most likely heard about the tax reform bill that was passed by Congress and signed by the President over the holidays. One big change that came out of it was the doubling of the exemption amount for federal estate, gift, and generation-skipping transfer taxes.

Beginning in 2018, the exemption for federal estate, gift, and generation-skipping taxes increased from a $5 million base to $10 million. That amount was annually adjusted for inflation which makes the exemption about $11.2 million, or $22.4 million for a married couple in 2018. This means that you can pass down a total of $11.2 million (or $22.4 million if you’re married) to heirs without incurring any federal estate taxes.

Of course, planning to minimize or avoid estate taxes has always been a traditional benefit of estate planning. If taxes were your primary concern, you may be thinking that you can now neglect planning in light of these legislative changes. But, that would be a mistake.

As I’ve mentioned many, many times on this blog, estate planning is about much more than avoiding taxes. Good estate planning will ensure that your financial and medical wishes are followed if you become incapacitated or pass away. Estate planning further allows you to direct how your assets are divided and to whom they should pass. Also, if you have minor children, you can select who you want to care for them if you die, rather than a judge who doesn’t know you or your family.

But even if these reasons aren’t enough and you are willing to roll the dice now that the government won’t likely get their hands on your money, you need to fully understand the risk you are taking.

It is critical to note that the new estate tax exemption only lasts for a set number of years. After 2025, under the terms of the act, the exemption would revert back to the $5 million base. Further, the next presidential election could roll it back even more. If you have accumulated sufficient wealth, you should consider making gifts before the sunset provision takes effect after 2025–or earlier, depending on the next election cycle.

So, rather than lessening the need to plan, there are plenty of important issues that require an experienced Bay Area estate planning attorney who understands design options to protect inherited assets, as well as making sure that you do not leave a lot of money to a beneficiary who is not prepared to handle it properly. There are also several states that have their own inheritance taxes (which you may need to consider if you own property outside of California or have a beneficiary that lives in one of these states), as well as income tax issues that can cause problems.

The doubling of the estate exemption was historic. There’s really no precedent, so we can’t look to the past for clues about what will happen next. The important thing to remember is that the pendulum can easily swing the other way, and it is critical that you are prepared for that possibility. Rather than live with uncertainty, talk to a Bay Area estate planning attorney about how to best plan for the state of your affairs both now and in the future. If you would like to schedule a consultation at our Santa Clara law firm, call (650) 422-3313 and mention this blog.