Estate plans under current tax law
Connecticut residents may have heard about the changes to the tax code brought about by the Tax Cuts and Jobs Act that was passed in December 2017. One of the biggest changes was the increase to the federal estate and gift tax exemption. The exemption currently stands at $11.18 million for individuals and $22.36 million for married couples. However, these rates are set to expire in 2026 if no changes are made to the current legislation.
This may be important for those who are making future estate planning decisions such as portability based on today's rate. If rates go back to where they were in previous years, it could result in the IRS taking action to claw back a portion of an unused exemption from the second-to-die spouse. However, using a bypass trust may make this a moot point as assets will be held outside of the estate.
It is important to understand that few families are actually impacted by federal estate taxes. After the passage of the new law, it is believed that only 2,000 will have to pay any tax at all. Prior to its passage in 2017, only 5,190 were believed to owe federal estate taxes. Therefore, individuals may be more focused on taking steps such as giving to charity that may help to reduce income taxes incurred today.
The use of trusts and other estate planning tools may make it easier to preserve assets today and for future generations. Individuals may create their own documents, and they may be as broad or narrow as they wish. However, it may be a good idea to have an attorney review the documents on a regular basis.