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Caring For Generations

Think Twice Before Starting Over from Estate Planning Scratch

On Behalf of | Feb 12, 2020 | Uncategorized

No, the estate tax isn’t dead, Fidelity reminds investors in “Tax Reform and Estate Planning”, even if it is in a coma until the end of 2025.

True, 2018’s tax reform had far-reaching implications, including an increase in the federal estate tax exclusion to $11.4 million, essentially eliminating that concern for all but the extremely wealthy. Many people considered undoing the planning steps they’d taken specifically to avoid estate tax.

The problem: some of that new law is set to return to pre-2018 status at the end of 2025 and the estate tax exclusion is slated to return to only $5 million at that time. There could be further law changes enacted, of course, but, as Fidelity cautions, “Given the uncertainty, you might want to plan defensively.”

If the estate tax had been eliminated as part of the Tax Cuts and Jobs Act, as some had expected, some individuals may have considered undoing prior planning they had done to avoid estate taxes. Some individuals may still be considering it given the increase in the federal estate tax exclusion. However, the uncertainty about what will happen after 2025 suggests individuals should exercise caution when it comes to undoing any prior planning because the doubling of the federal estate tax exclusion amount is set to last only 8 years.

Stay flexible, Fidelity advises, in terms of:

  • enabling beneficiaries to change the terms of a trust to benefit their own heirs or named charities
  • permitting the trustee to distribute assets to another trust with different terms
  • incorporating portability (if a surviving spouse cannot make full use of their federal estate tax exclusion, he or she may elect to add any unused exclusion amount to their own
  • making “upstream gifts” (gifting low-basis assets to parents who have no estate tax concerns) in hopes of getting a step-up in basis when the parents die
  • gift-splitting (treating a gift from one spouse as though it was made by both spouses)

Fidelity’s main message is the same as the one we convey to our Geyer Law clients: think twice about scrapping your entire estate plan – a wiser course of action consists of “tweaking” the plan to make it more flexible. Think twice before starting over, but DO consider ways to be better prepared no matter which way the 2025 story ends.

– by Rebecca W. Geyer