With the New Tax Law and Life Changes, it’s Time to Review Your Estate Plan

Q. Throughout the last decade, I have gone through so many changes in my life. Nine years ago, my wife passed away. A few years later our daughter got married, followed by my other daughter, followed by me getting remarried. Now I have a new wife, two son-in-laws, and five grandchildren. I heard as major changes in life happen, you should update your estate planning documents. I also read that the new tax law makes it important to review and make changes to my estate plan. Just so I know if it affects me, what impact does the new tax law have on estate planning? How can I ensure that my documents are properly reviewed and updated as needed, so that they will have the maximum effect at law given my life changes and the tax law changes?
A. Congrats on all of the positive changes that have occurred recently in your life. As you seem to be aware, changes to the law and significant events in your life could alter the way that you originally meant to apportion assets in your estate planning documents. As I often tell my clients, an estate plan is like a car: it needs regular maintenance to function as intended. The only way to ensure that your estate plan truly reflects your current wishes and needs is to have your documents reviewed and updated frequently.
Your estate plan (including your incapacity planning documents) should be updated for all of the life changes you described, including when your spouse dies or becomes incapacitated, you get remarried, your child married or divorces, you have a new grandchild, and more. (Click for an entire list.) In fact, your documents should be reviewed at least every 3 to 5 years even if there aren’t any of the above changes!
Also, when it comes to estate planning, external events can create the need for adjustments. Among such events is legislation such as the Tax Cuts and Jobs Act (TCJA). TCJA reduces individual and corporate tax rates, eliminates a large number of deductions and credits, and enhances other tax breaks. With these changes, there are provisions in the new tax plan that may have an impact on estate planning strategies. Here are some of the most notable changes.
Wills and Trusts: In many cases, taxpayers have language in their wills and trusts directing the executor or trustee to fund a trust—often called a bypass or credit shelter trust—upon death to use any remaining estate exemption before distributing estate assets to others named in the documents. With the increased estate tax exemption, the potential size of the bypass or credit shelter trust could unintentionally disinherit other intended beneficiaries of the estate.
Here’s how that could happen: let’s say you completed your estate plan in 2001, when the federal estate tax exemption was $675,000. The plan stipulates that the amount that can pass free from federal estate tax should go to your children and everything else to your spouse. That might have worked in 2001, when the kids would have gotten $675,000. But now the kids will receive up to $11.2 million, and you could unintentionally disinherit your new spouse. Or maybe your prior estate plan left everything to your spouse and nothing to your children, which is probably no longer your desires given your new marriage. Or maybe your estate plan only applied to your prior spouse and doesn’t leave anything to your new spouse — again, probably not what you want.
529 and ABLE Plans: The new law permanently expands the benefits of 529 college savings plans. These plans, which permit tax-free growth and tax-free withdrawals for qualified educational expenses, also offer some unique estate planning benefits.
Contributions to a 529 plan are removed from an individual’s estate even though that individual retains the right to change beneficiaries or get their money back. It’s also permissible to bunch five years’ worth of annual gift tax exclusions into one year.
In 2018, for example, when the annual gift tax exclusion is $15,000, an individual could contribute $75,000 to a 529 plan—$150,000 for a married couple—without having to file an informational gift tax return or using any of their $22.4 million combined gift and estate tax exemption.
Beginning in 2018, 529 plans will be even more valuable. Distributions from 529 plans can be used for elementary and secondary school expenses, not just higher-education expenses. A 529 plan can also be rolled over into an ABLE plan, which is designed to help pay for future disability expenses.
For more details on implications from TCJA for seniors, please read my article, Tax Overhaul: The Good, the Bad, and the Ugly for Seniors.
 
Making Changes to Your Estate Planning Documents
As you can see, with all of your life changes and the new tax law, it is important to review and update your estate planning documents. Even if no changes are necessary, you should annually sign an updated Powers of Attorney. Some financial institutions won’t accept a Power of Attorney more than a year old. Similarly, the older an Advance Medical Directive is, the less likely it is that it will be honored by a doctor or hospital.
Don’t let too much time pass between reviews of your plan. The cost of a review is minimal; but the cost to your family if you neglect your plan could be disastrous.
Join the Farr Law Firm Lifetime Protection Program
When it comes to making changes to your estate planning documents, changes (such as changing one fiduciary for another) can be made without a consultation. Other changes may require an additional consultation. If you remain part of our Lifetime Protection Program, which is offered to our clients one year after they sign their initial planning documents, the consultation with an attorney or paralegal will be at no additional charge.
In addition to ensuring that your Powers of Attorney are recent (and therefore more likely to be accepted) there are other benefits to Lifetime Protection Program membership, including and Annual Review of your estate plan; Free Modifications of any document if there are changes in the law; Free Phone Calls at any time if you have a question about your existing estate plan or any other legal matters, at no additional charge; Free DocuBank Renewal, and more.
 
If you or a loved one has not done your estate planning, incapacity planning, or long-term care planning, please contact the Farr Law Firm to make an appointment for a no-cost initial consultation:
Fairfax Estate Planning Attorney: 703-691-1888
Fredericksburg Estate Planning Attorney: 540-479-143
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Rockville Estate Planning Attorney: 301-519-8041
DC Estate Planning Attorney: 202-587-2797
 

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