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New year, new exemptions: It’s the perfect time to review and update your estate plan

Estate Planning

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You may have had the foresight to create an estate plan to ensure that your assets are distributed the way you want them to be after you are gone. However, each new year brings updates to tax laws and potential life changes, all of which should be reflected in your estate plan.

Should you update your estate plan? Definitely!

Because state and federal tax law changes often go into effect at the beginning of a new year, it is an ideal time to review and update your estate plan. For example, during the past year the federal estate tax drastically changed as a result of the Tax Cuts and Jobs Act (TCJA), which was passed on December 22, 2017. The TCJA substantially affects wills containing tax-planning language, so if your estate plan has not been updated since the TCJA took effect, it is encouraged you do so as soon as possible to ensure your estate fully benefits from its provisions.

Major life changes, such as marriage, divorce, a death in the family, or even an increase or decrease in assets, warrant updating your estate plan.

What if you don’t have an estate plan? The new year is the perfect time to create one, no matter how many—or few—assets you may have. Among the many benefits, an estate state plan can help to protect families with children and ensure that heirs are not overburdened with taxes. A good estate plan created with the help of a knowledgeable estate planning attorney allows you to control the disbursement of your assets according to your wishes. It also allows you to take advantage of tax laws that benefit your estate.

2019 New York State estate tax
New York estate tax has not been adjusted with the federal tax and can be very slippery—if an estate is substantial enough to be subject to it. An estate only $1 more than the exclusion amount is subject to estate tax on the entire estate, not just the amount in excess of the exclusion amount. This means that an estate valued at $1 less than the exclusion amount is liable for no estate tax, while an estate valued at $1 more than the exclusion is subject to a substantial tax. Unlike the federal estate tax, a surviving spouse cannot use a deceased spouse’s unused estate tax exclusion amount.

The estate tax exclusion amount has, however, increased to $5.74 million beginning in 2019 for those who die on or after January 1, 2019 and before January 1, 2020. It is expected that the estate tax exclusion will increase with inflation every year.

2019 federal tax changes
For high net-worth individuals in 2019, the federal estate and gift tax exemption has increased from $11.18 million in 2018 to $11.4 million per individual, according to the Internal Revenue Service (IRS). This means an increase in available funds that can be given during one’s lifetime without having to pay a gift tax. The exemption is temporary and scheduled to revert to $5.6 million in 2026.

The annual exclusion for gifts to spouses who are not U.S. citizens has increased $3,000 to $155,000, while the gift amount from an individual outside the United States—which could trigger reporting obligations—increases to $16,388, according to the IRS.

The $15,000 annual gift exclusion remains the same as it did in 2018.

Wills, beneficiary designations, powers of attorney and health care proxies
The new year is a logical time to ensure that your will is up to date for reasons other than just taxes. Without a will, your assets could pass under the intestacy statute to persons you do not intend to receive them. You cannot pass assets to nonfamily members and your estate cannot make charitable contributions.

If you have minor children, they are not legally able to inherit directly and your will should provide for a contingent trust to provide for them financially until they are adults in the event that both parents are deceased. You should make sure you that you have designated guardians, and that you have not had a change of heart about who will care for them if you die before they turn 18.

A will should also make provisions for disposition of your “digital assets,” such as social media, online banking and accounts such as Amazon.

It is also important to designate beneficiaries—and backups—for all of your retirement and pension accounts, annuities and insurance policies. Without designated beneficiaries, your assets could wind up in in the courts, or with someone you did not intend.

No matter what your age, up-to-date power of attorney (POA) and medical directive forms are key elements of an estate plan. A POA allows an individual of your choice to handle your financial matters if you are not present and available to, or if you are incapacitated. A POA also can be used with regard to certain medical issues. New York State’s POA form was updated in 2010, so be sure the form you are using was created in 2010 or later.

An estate planning attorney who is knowledgeable about current state and federal tax laws can help you update your estate plan in the new year. If you do not have an estate plan, make 2019 the year that you take control of the future of your assets.

 

Jeffrey M. Johnstone, Esq. is a Partner in Tully Rinckey PLLC’s Rochester office, where his practice is concentrated in estate planning, trusts, estate administration, corporations and business, not-for-profit entities, and federal and New York tax.

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