The New Year is less than a month away, and every day that passes, you’re getting older. If you don’t have an estate plan in place, it’s time to take the appropriate steps to make one.
If you do have an estate plan in place, the new year is a great time to review it.
This year, you owe it to your family to sit down and understand the changes that may affect your estate plan. A quick list of the law changes that you need to know about that have an impact on your estate plan are:
3 Recent Laws That Require an Estate Plan Review
1. New Estate and Gift Tax Exemptions
The IRS updated the exclusions for gift and estate tax. A few changes to know that will impact your estate plan are:
- Gift Tax – The annual exclusion for gifts is $14,000. This exclusion rate has been present since 2013, and this will last until 2017.
- Estate Tax and Gift Exemption – The federal exemption amount for estate tax purposes has changed. The exemption rate in 2016 is $5.45 million. The rate will increase in 2017 to $5.49 million.
So, you can leave more to your estate or provide higher annual gifts to help alleviate tax burdens left by larger estates.
States have their own estate tax rates, too.
New Jersey residents received a reprieve this year when Governor Chris Christie repealed the estate tax in the state. The law is effective from January 1, 2018. Estates in the new year will have a tax exemption of $2 million for the 2017 year.
Donald Trump, president-elect, has stated that he will work to repeal the federal estate tax.
2. Inherited IRA Accounts Deemed “Not a Retirement Fund”
Inherited individual retirement accounts (IRAs) were deemed not retirement funds in mid-2014. Clark v. Rameker was upheld by the Supreme Court. Creditors can go after an inherited IRA in bankruptcy, so the funds can be taken from an estate that’s bankrupt.
The best method to protect these funds is to create a Standalone Retirement Trust.
A Standalone Retirement Trust that is properly drafted will:
- Protect the fund from creditors
- Protect the fund from going to non-blood relatives (i.e. spouses)
- Allows for better control and oversight of the funds
There are tax downsides to these trusts, but proper estate planning can reduce these tax burdens.
3. Same-Sex Marriages Are Granted the Same Benefits as Opposite-Sex Marriages
Same-sex marriages are recognized on the federal level. The Supreme Court ruled that all states must accept same-sex marriage on June 26, 2015. Couples that are in a same-sex marriage must have “equal dignity in the eyes of the law.”
The change makes estate planning easier for same-sex marriages.
Proper estate planning can take place without same-sex couples being forced to jump through hoops to ensure that their spouse can retain their estate.
If you created an estate plan before the ruling and haven’t updated your plan, it’s time to discuss your options with a lawyer who specializes in estate planning. The process is less arduous than it was in early 2015.
5 Items to Check Off During an Estate Plan Review
Your estate plan needs to be updated. When life changes occur, it’s time for you to sit down and ensure your estate is in order. A few of the major life changes that demand a review of your estate plan include:
- Marriage or divorce
- Adoption or child birth
- Beneficiaries becoming an adult
- Changes to independents
- Death of a guardian or minor
- Obtaining or selling a major asset
- Disability of a beneficiary
- Changes to your lifestyle, such as starting a business
The estate planning documents that must be reviewed every new year are:
- Life Insurance Policies – Beneficiaries of a life insurance policy can be added or removed as necessary.
- Trust Documents – A trust must be up-to-date. If a child needs special care, or if money is to be provided for educational needs, this must be added or modified in a trust.
- Will – A general update to your will and distribution of your assets should be done yearly. Any major asset additions should be added.
- Living Will – The living will is also called a power of attorney for healthcare. This is a person that’s responsible for medical decisions on your behalf.
- Retirement Accounts – The beneficiaries of any retirement account can be changed or updated. This must be done after a marriage, divorce, or birth of a child.
Your attorney will be able to help you determine any additional estate planning documents that may need to be modified and reviewed.