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Jan 2018
24
January 24, 2018

It's Time to Review Your Estate Plan

The Act contains sweeping changes that will impact all aspects of tax planning to minimize estate, gift and generation-skipping transfer taxes. The significant new opportunities created by the Act, and avoidance of some of the pitfalls of an estate 
plan developed under old law, require careful  review of existing estate plan documents with knowledgeable estate planning counsel.

The new estate, gift and generation-skipping transfer tax exemptions are a significant increase over the exemptions available under old law. For example, the exemption was only $1,000,000 per person in 2002, and only $2,000,000 per person in 2008. Many older estate plans developed in years with these lower exemptions provided for the establishment of “exempt” or “credit shelter” trusts for children and/or grandchildren in an amount equal to the exemption amount effective at the time of the trust settlor’s death. Under the old rules, these “exempt” trusts would generally include only a fraction of a decedent’s assets, with the remaining assets typically passing to a marital trust for the benefit of the surviving spouse. However, the new and significantly higher exemptions may result in overfunding of the “exempt” trust (perhaps with all of the trust assets) and a failure to provide sufficient assets to the surviving spouse. You should carefully review your estate plan to ensure there are no concerns for the surviving spouse.

In addition, the higher estate, gift and generation-skipping transfer tax exemptions may also result in funding inheritances in ways you did not intend. For example, an older estate plan may fund a trust for grandchildren equal to your remaining generation-skipping transfer tax exemption, with the remaining assets passing to trusts for children.  A grandchildren’s trust funded using a formula tied to your remaining generation-skipping transfer tax exemption could result in a substantial underfunding of the trusts for children.

Improper funding could also result if a portion of your child’s inheritance was to pass outright, while the other portion is held in trust. In this case, the increased exemption might result in the entire share being held in trust based on the funding formula.

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