The Tax Cuts and Jobs Act, signed by President Trump on December 22, 2017, included provisions that doubled the estate tax exemption. The exemption for 2019 is $11.4 million for individuals and $22.8 million for married couples. According to the Tax Policy Center, less than 4,000 estates in the U.S. will have to file an estate tax return under the new laws, and of those only 1,800 (or fewer) will end up owing any money.
Whether or not the federal estate tax is ultimately repealed is anybody’s guess at this point, but one thing is certain—all of us need an estate plan even if such a repeal comes to pass. That’s because minimizing estate taxes is not the sole purpose of estate planning, far from it.
If a person passes away without a will or trust, his or her estate assets are distributed according to what is known as intestate succession. As a result, “who gets what” follows strict guidelines, set by each state, with no regard to the actual emotional relationships between you, your spouse, your children, and members of your extended family. What you would have wanted is irrelevant to the state. Your assets must be distributed, and the state has devised a formula to do so.
Another reason you need an estate plan is to make sure that a person of your choosing has the authority to make medical and financial decisions on your behalf if you become incapacitated. Without your own plan, someone will petition the court to gain control over your assets and medical care. This could well be a person you would never have wanted to make important decisions like these for you. The result? You may not receive the level of medical care you would have wanted. Conversely, you might be subjected to medical procedures you would not have wanted to keep you alive in an end-of-life situation. Similarly, financial decisions might be made about the management of your assets that you would never have taken on your own.
If you have minor children, you must also consider what will happen to them if something terrible happens to you and your spouse. An estate plan allows you to name people of your choosing—people you trust—to raise and care for your children if you cannot. Without a plan the court will decide who has control over your children. The court’s decision could lead to your children being raised in a place and manner you never would have wanted.
Your estate plan can also be designed to protect the inheritances of your children when they become adults. Your plan can protect their assets against remarriage, creditors, predators and other threats. In addition, your plan can pass your work ethic, values and sense of responsibility on to heirs, as well as help you leave a lasting legacy.
As you can see, the benefits of estate planning go far beyond minimizing estate taxes. Perhaps the greatest benefit of all is the peace of mind that comes from knowing you have a plan in place for the future.