Estate Planning in 2019

After a one year hiatus in 2010 when the Federal estate tax was repealed, the law was reinstated as of January 1, 2011 with the exemption being increased to $5,000,000. While originally scheduled to revert to only $1,000,000 on January 1, 2013, as a result of the passage of The American Taxpayer Relief Act of 2012, the exemption was to remain at the $5,000,000 amount, adjusted annually for inflation. The 2018 inflation adjusted exemption was to be $5,600,000, but as a result of the passage of the Tax Cuts and Jobs Act of 2017, the exemption became $11,200,000 that year, which was increased due to inflation to $11,180,000 in 2018, and is $11,400,000 in 2019. The top marginal estate tax bracket remains at 40 percent. The annual gift tax exclusion as of 2019 remains the same as it was in 2018 as $15,000 per donee per year.

While the Federal estate tax may not impact as many people as in the past, it remains important to address one’s estate planning issues regardless of changes, or potential changes, to the law. For many individuals, estate planning may not exactly be a “hot” topic. After all, planning for one’s own demise is not the most pleasant of matters to address. As a result, many people procrastinate when it comes to getting their affairs in order. Recent events may give people even more reason to put off planning. Estate planning, however, remains an important topic for everyone, no matter their financial status.

While tax minimization is high in many people’s minds, estate planning deals with more than taxes. Estate planning fundamentally involves planning for the disposition of your assets to ensure they pay to the appropriate people whom you wish to inherit – not necessarily to the people who will inherit under the state laws.While minimizing estate taxes should be part of any comprehensive estate plan, taxes are not the only concern. Making sure that your assets pass to those family members, friends, and/or charities in the manner that you wish should be the paramount concern. If your goals for disposing of your assets can be accomplished while also minimizing estate taxes, even better.

Regardless of what happens with the Federal estate tax law, one must still contend with state estate tax issues, especially in Massachusetts. Massachusetts remains only one of 13 states who have enacted and retained their own separate estate tax. See the article on The “New” Massachusetts Estate Tax. The Massachusetts estate tax exemption presently is only $1,000,000, a small fraction of the Federal exemption. If the total value of your estate exceeds $1 million, a Massachusetts estate tax may be due. Keep in mind also that while the effective maximum tax rate in Massachusetts is only 16 percent, the Massachusetts tax is actually assessed on the entire value of one’s estate, not just the excess over $1,000,000. A bill has been introduced in Massachusetts seeking to increase the exemption amount, but its passage is not assured, and even if it becomes law, it will not occur for at last another year or two from now.

While more changes to the estate tax laws may be forthcoming, postponing addressing your estate planning objectives is never a good idea. An estate plan should evolve over time, be reviewed periodically, and revised from time to time.