Time for A Review of Your Estate Plan

It’s always important to review your estate plan every few years, especially if there have been changes to the estate tax law.

The election of Donald Trump will likely mean changes in the federal estate tax, says NJ 101.25 in “You may want to take a second look at your estate planning.” However, some changes are already taking place at the state level.

New Jersey’s state estate tax exemption of $675,000 is the lowest in the country. It has motivated families to build estate tax planning into their estate planning documents to minimize future tax. Garden State couples typically create a credit shelter trust funded at the first spouse’s death to cover the New Jersey estate tax exemption. This lets each spouse use their respective estate tax exemptions to eventually transfer their combined estate to their children or other beneficiaries. The NJ state estate tax is now being phased out. This change in the law definitely qualifies as the kind of change that requires a visit to your attorney.

Many couples prepared wills or revocable trusts that allowed for the funding of the credit shelter trust through a disclaimer by the surviving spouse. By doing so, in the absence of a disclaimer of property by the surviving spouse, he or she would receive all of the deceased spouse’s assets outright and free of trust. However, if the spouse disclaimed or renounced the right to receive certain assets within the nine-month period following the first spouse’s death, under the terms of the will, the disclaimed assets would go into a disclaimer trust, which is a credit shelter trust. The disclaimer trust planning in a will lets the surviving spouse elect whether or not to fund the trust.

If a credit shelter trust isn’t helpful, the spouse simply won’t disclaim and will receive the property outright. You should confirm with your estate planning attorney that this is in your documents.

Trusts for estate tax planning may still be a good strategy for those with a sizeable estate that’s subject to the federal estate tax. The exemption now is “portable” between spouses, which makes the use of a credit shelter trust less critical. However, funding a trust at the first spouse’s death may still be helpful for families with estates likely to be subject to the federal estate tax.

The trust will shelter the amount of the first spouse’s exemption from estate tax at the second spouse’s death. However, it will capture and shelter any appreciation in those assets that occurs between the first and second deaths. The use of a trust at the first spouse’s death lets the family maximize generation-skipping transfer (GST) tax planning.

Changing presidents, laws and personal circumstances are all good reasons to review estate plans with your attorney every four years. Be sure that your estate plan continues to reflect your goals, maximizes tax savings opportunities and protects your loved ones.

Reference: NJ 101.25 (November 10, 2016) “You may want to take a second look at your estate planning”