Thank you to Brian J. O’Connor of The New York Times for his on-point article about the new estate tax law and heirs, “Heirs Inherit Uncertainty With New Estate Tax.” The most significant takeaway –the sunset provision of the new law will wreak havoc. At the end of 2025, the rules will change again – if they have not already. After those eight years, estates could face increased tax bills for strategic decisions made to address the newly enacted tax law.
Another potential pitfall – Congress did not address how to handle gift taxes after the higher exemption ends. As gift and estates taxes a single tax, large gifts affect the estate tax; failure to coordinate gifts properly creates the potential for a nasty claw back tax bill.
If you are very wealthy, the new tax law will not have much of an impact on your estate plan. However, if your estate value is between $5 million and $20 million, you will want to have your estate plan reviewed. Moreover, if your estate includes an irrevocable trust, you will also want to consider a review of your estate planning to bring more assets back into the estate because of the higher exemption.
The same is true if your estate faces a generation skipping transfer tax. It is a separate tax with an exemption equal to the estate and gift tax exemption. However, it is possible to incur a generation skipping tax even if there is no estate tax and vice versa.
Thanks to the new tax bill, your estate needs a review, now more than ever before.
If you are sure that you will not die between now and when the tax laws end in 2025, I applaud your optimism. However, if you want to protect your spouse and your heirs, please call the office and make an appointment for a review.