The recent tax reform under the new White House Administration has led to new federal estate and gift tax limits. While this increase might require some people to re-engineer their estate plans, it doesn't make trusts obsolete. Despite being able to gift more money without paying tax, people still need certain types of trusts – namely, living revocable trusts that can help holders control their assets after death, save money, and avoid probate.
What the New Tax Exemption Means for Asset Owners
The Internal Revenue Service (IRS) announced the new estate and gift tax limits are $11,180,000 per person and $22,360,000 per couple under the Tax Cuts and Jobs Act (TCJA), based on inflation adjustments. This is a substantial increase from the 2017 amounts of $5,490,000 and $10,980,000, respectively. The new exemption amounts make estate and gift tax planning a non-issue for the vast majority of individuals.
Why You Need a Revocable Trust Despite the New Tax Policy
If a revocable trust is currently part of your estate plan, the new estate tax limit should not change that. Revocable trusts, and other types of trusts, are still just as beneficial as they were under the smaller gift tax limit last year. While a Last Will and Testament (LWT) will allow your family to retain ownership of property and asset rights upon your passing, the administration of your LWT is still subject to public judicial oversight. This means despite your planning that your family must go through the time, stress, and cost of probate court.
One of the best ways to avoid probate and remain in control of your assets after death (without the need for probate) is with a living revocable trust. A revocable trust enables assigned beneficiaries to automatically gain control over bank accounts, life insurance policies, and other assets without going through the probate process. Throughout your life as the settlor (creator and beneficial owner of the trust) and trustee of your trust, you retain control over all your assets and any income you earn remains yours. Only after your death will your beneficiaries receive the assets listed in the revocable trust agreement. While you are alive, assets can be added to and removed from your trust by you. Additionally, you can always amend the terms of your trust including who you have named as beneficiaries.
Having a revocable trust under the new tax policy can prevent probate fees, which can reach into the hundreds of thousands depending on the total value of your estate. Adding further benefit to grantors, the execution of a revocable trust after death is entirely private; there is no public court proceeding necessary. Using a revocable trust can save you and your family time, expenses, and headaches.
Estate Plan Under the New Tax Act with a Lawyer
If you have questions or concerns about how the new tax act may impact your estate plan, contact our lawyers and request a consultation. We are staying on top of changing tax laws and gift exemptions. We are happy to help you figure your estate out, establish a trust, or alter your plan accordingly.