Conversations with estate planning attorneys have led me to understand an interesting trend in human behavior. Individuals typically complete their estate plan at two stages in life: marriage and retirement. On one hand, this is good. Major life changes warrant a review of your estate plan and an update to your documents. On the other hand, this is not so good. Much like the other areas of your financial life, your estate plan needs to be reviewed on a regular basis.
My experience has been that most young couples know they need to get their estate plan done, but they aren’t as motivated to do so as they need to be. Even when a couple is motivated to get it done, the process simply gets placed on another ‘To-Do’ list. After all, who wants to talk about death and incapacity on your one free weekend?
Completing your estate documents can be one of the greatest gifts you give to your family. The gift will be given at an incredibly difficult time, but will be appreciated. You have the opportunity to predetermine how your life and estate is handled while you have the ability to make those difficult decisions. Leaving an array of questions for your loved ones to answer after you pass will only make that time more challenging.
Why should you review and update your estate plan more than twice in your lifetime? Changes in family, business, law, and tax all provide reasons to confirm your estate plan is right for you. Here are a few examples to show what I mean:
Estate tax exemption and clawback. With the Tax Cuts and Jobs Act of 2017 (TCJA), the estate tax exemption is now $11.4 million per person, or $22.8 per married couple. This means you can leave up to this amount in your estate and avoid estate taxation. The IRS has also provided guidance that if you gift this amount during your lifetime and die when the exemption is reduced after 2025, you won’t be subject to any ‘clawback’ taxes.
Federal versus state tax law. Despite the TCJA increase in Federal estate tax exemption, some states still impose a lower estate or inheritance tax. Depending on what state you live in, your estate may still be subject to a lower threshold. Diligent planning will help you pass on your assets as efficiently as possible to your heirs.
Fair does not mean equal. If I’ve learned one thing in my business life it is this: everyone has a different definition of fair. For example, if you have two children and one has a successful career and the other has special needs, do you leave them the same amount of assets at your death? What if one child wants to take over the family business and the other wants no part of it? Every individual and family has different circumstances to consider. Sometimes there isn’t even a perfect answer. Consulting with your estate planner and financial planner on a regular basis will help you come up with the most appropriate strategy.