Hyden, Miron & Foster, PLLC Law Blog

Monday, December 10, 2018

The New Tax Law and Your Estate Plan

How might the new tax law influence your estate planning decisions?

The Tax Cuts and Jobs Act, signed into law in December of 2017, is anticipated to have far-reaching tax consequences.  One overlooked field that will certainly be impacted is that of estate planning. Tax reform will bring about direct changes to the estate tax exemption, while also have indirect consequences on how you can best plan for the transfer of your assets to the next generation.  Our Arkansas estate planning attorneys discuss the new tax reform act and what it may mean for your existing estate plan or your future creation of an estate plan.

The Estate Tax Exemption

Previously, the estate tax exemption, which eliminates the need to pay estate taxes on estates under a certain value, was set to $5.5 million per person.  Now, the Tax Cuts and Jobs Act has raised the estate tax exemption to $11.18 million per person or $23.36 for a married couple. Per the greatly increased exemption, very few estates will be subject to estate taxes.  

Traditionally, estate taxes can be quite substantial, costing the estate at times nearly half its value.  With the new doubled exemption, it may be tempting for would be estate planners to overlook the importance of considering the estate tax.  However, it is vital to note that the new exemption rate is set to expire in 2025. As such, those creating an estate plan today should not overlook the possibility that their estate could once again be subject to estate taxes should the exemption decrease. Rather than ignoring the potential for estate taxation, planners should take advantage of the current exemption and create an estate plan that will withstand any changes that come to tax laws in the future.  

Reduce Your Estate’s Exposure to the Estate Tax

There are several ways in which you can reduce the likelihood that your estate may be subjected to the estate tax.  Trusts are the most commonly used vehicle to minimize estate taxation, but there are many different types of trusts to choose from and each comes with its own benefits.  One option is to create a spousal lifetime access trust or SLAT. A SLAT is an irrevocable trust that will remove your assets from your estate and transfer them to a trust for the benefit of your spouse. In doing so, the assets will not be subjected to estate taxation and your spouse will have some control over them.  A SLAT does have downsides should you divorce.

These are just some of the many ways in which trusts can be used to reduce the potential for taxation after your death.  Contact an estate planning lawyer for more assistance with creating your comprehensive estate plan that will thrive under the ever-changing tax laws.  

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