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New tax law should be considered when estate planning

As the reality of the new tax laws hit home, it is important to think about how they will affect estate planning. New Yorkers who have significant assets should be aware of certain ways to take advantage of the changes to the law. Often, people who have already taken the necessary steps to craft an estate plan will be reluctant to change the document. Understanding the new tax laws might alter that view.

The wording of a will could negatively impact how much a spouse gets after the testator's death. People who drew up a will prior to 2018 might not have an actual dollar amount that will go to their children. If that is the case, the will could mention the current exemption amount that will determine how much the children will inherit. The rest of the estate will be placed into a trust for the spouse. Because the amount for 2018 has doubled from $5.49 million to around $11 million, that could leave those whose assets surpassed that amount facing a different outcome than their original intent.

Had the person died in 2017 and the will remained the same, the $5.49 million would have gone to the trust for the children. The rest would have gone to the spouse's trust. Because these documents were likely written several years ago, the changes to the law were presumably not expected. Inflation adjustments sparked changes to the estate tax exemption between 2011 and 2017. Some people chose to instruct their executor to calculate the current amount. Many people chose to use trusts to avoid the estate tax. With the new law and the changes to the amount that is shielded from tax, it has become essential that people change their documents accordingly to protect their heirs from certain unexpected loopholes that the new law inadvertently creates.

Creating an estate plan does not necessarily mean that the process is over and it should never be changed. Protecting one's assets and ensuring that loved ones get what the testator wants is an ongoing process, especially when there are major changes to the law regarding inheritance tax and how the assets are distributed. An experienced lawyer will keep track of all the changes to the law and assist people with adjusting their estate planning accordingly.

Source: CNBC, "Tax bill creates a possible $11 million windfall for your kids. Here's how," Sarah O'Brien, Feb. 15, 2018

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