The federal estate tax is making news again after a repeal of it was included in a tax cuts draft bill released by the United States House of Representatives. If passed, the bill would repeal the federal estate tax by 2024, while doubling the basic exclusion amount for gift taxes.
The federal estate tax — which we’ve discussed many times — is placed on any estate that exceeds the federal estate tax exemption. In 2017, that exemption is $5.49 million per individual. In 2018, it will go up to $5.6 million. For married couples, who can double their estate tax exemption through portability, the exemption will increase to $11.2 million.
So, what would a repeal of the estate tax mean for most people? Probably not a whole lot. It’s estimated that only 5,500 estates will be taxable this year, which means the vast majority of estates won’t exceed the estate tax exemption. And keep in mind that in Colorado, there is no state inheritance or estate tax.
For people whose estates are valued in the millions, the draft bill might be welcome news, but for everyone else — or approximately 99.8 percent of the population — it will be business as usual. That’s why, as an estate planning attorney, I don’t emphasize how to avoid estate taxes through estate planning. I emphasize how to economically and efficiently pass your assets onto the people you love while advocating for your own interests should something happen to you.
With that in mind, a good estate plan:
- Presents a comprehensive and consistent strategy that is legally valid, up to date and smart.
- Establishes what goes to whom through basic documents, like a will, and more complex arrangements like special trusts. An estate planning attorney can help you determine what’s best for your own estate. At the end of the day though, your estate plan should leave no ambiguity about how your estate will be divided.
- Takes care to provide for special circumstances like multiple marriages and mixed families in a way that doesn’t leave anyone feeling left out in the cold.
- Advocates for your financial and medical interests when you are physically unable to because of an accident, illness or other unforeseen event.
- Leaves you with peace of mind that you and your loved one’s futures are planned for.
With 2017 winding down, it’s the perfect time of year to consider what’s important to you and whether the people you love or the assets you’ve worked hard to earn are well-represented in your life and in your estate plan. If the answer is no, it’s time to make some changes.
Give me a call if you need help creating or updating your estate plan or if you have questions on estate planning in general.
Update: House Republicans passed a bill on Nov. 16 that included a repeal of the federal estate tax by 2024.
Lynn Bird is the Estate Planning Practice Group Leader at Caplan and Earnest. He can be reached at email@example.com or 303-443-8010.