With the recent passage of the new tax bill by congress, many individuals’ tax situations are in for a significant shakeup. In both the short- and long-term, sweeping regulatory changes are requiring some to take a deeper look into how they’re managing their money. One area of asset management in particular that’s experiencing some sizable tax adjustments is estate planning.
Creating a well-written estate plan means revisiting the document from time to time. As major changes can happen at a personal level, so can outside events that bring financial consequences. These recent tax changes are such an occasion, and as such, there are a couples facets an individual would be wise to reassess in their estate plan.
Changes to the estate tax
When an individual dies, the assets that are passed on to their heirs are taxed by the federal government. Previously, estates that had a value of $5.6 million or less were exempt from this tax. Under the new code, that exemption has doubled to $11.2 million. For wealthier individuals, this change could warrant another look at how they plan to distribute their assets.
At the state level, Missouri does not impose an estate or inheritance tax. Individuals with assets and properties in other states, however, would be prudent to keep up-to-date with those states’ tax laws.
These exemptions will sunset
It should be noted that some of these changes are not permanent. On Jan. 1, 2026, the estate tax exemption will revert back to pre-2018 levels, so some may want to consider a strategic asset allocation plan with that sunset in mind.
As an example, an individual who is using an irrevocable trust for low-basis assets may wish to open it up to the estate tax if they believe they could pass away before the new exemptions sunset. There is certainly a window to consider, and for some it may be in their best interests to strike while the iron is hot, so to speak.
Consulting with an experienced professional
With something as crucial as an estate plan, it’s never prudent to approach its creation and maintenance on your own. An experienced attorney who is well-versed in estate planning may be of great help to anyone with questions regarding the new tax landscape. As with most things regarding the tax code, the details can be complex, so turning to a professional could be a wise decision.