Changes in tax laws should be reflected in estate planning

Delaware residents may be aware that there have been a number of federal tax law changes in recent years that have significantly altered the way that estate planning should be approached for wealthier individuals. Between 2004 and 2015, the federal estate tax exemption rose steadily from $1.5 million to $5.43 million while federal capital gains rates have gone from 15 percent to almost 24 percent.

When the federal estate tax exemption was lower along with the capital gains tax, it made sense for people to sell or give away their assets before death, but this is no longer the case. If older individuals do need access to cash, they might be better off either taking money from retirement accounts or taking out a loan.

Trusts were once a practical solution to avoiding estate tax. There are still a number of good reasons to establish a trust, but individuals may want to review their trusts and see if they are still appropriate for their situation. Their complexity and administrative costs may outweigh their savings with the newer tax laws in place.

Finally, gifting to relatives as a way of avoiding estate tax may no longer be necessary as well. However, Delaware and many other states have their own inheritance tax with exemptions that are far lower than that provided by federal law, so this should be taken into account.

As a result of these changes, those with existing estate plans may want to work with an attorney to ensure that the documents still reflect the wishes and objectives of the property owner. In addition to the effect that federal tax laws can have, changes in a person’s family or financial situation may make a periodic review advisable as well.



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