The new tax legislation raises the federal estate tax exemption to $11.2 million for individuals and $22.4 million for couples. The increase means that an exceedingly small number of estates (only about 1,800, nationally) will have to worry about federal estate taxes in 2018, according to estimates from the nonpartisan congressional Joint Committee on Taxation.
So, you may be wondering, is estate planning even still necessary?
To put it simply: Yes!
Comprehensive estate planning does a lot more than guard against you owing federal estate taxes. Other than taxes, you and your family likely face a range of estate planning challenges, such as:
- Distribution of your assets. Create your legacy with the help of tools like a trust and/or a last will and testament.
- If you die without a will, state intestacy laws determine where your stuff goes. You lose control, and the people closest to you may feel hurt or may suffer financially.
- If your estate plans do not include asset protection strategies, your lifetime of hard work and savings could be squandered needlessly.
- Cognitive impairment. Dementia, Alzheimer’s disease or other disorders could make handling your own affairs impossible or at least ill-advised. Executing a durable power of attorney (POA), for instance, allows you to choose a person, referred to as an agent or attorney-in-fact, to step in and manage your financial affairs on your behalf. Without this arrow in your quiver, your fate will be left to the public whims of the court, which could appoint someone else—for instance, a public conservator.
- Medical emergencies. What if you become unable to communicate your preferences regarding medical care yourself? Naming someone as your health care power of attorney under a Medical Power of Attorney allows him or her to act as your voice for medical decisions. In addition, a living will or advance directive allows you to specify the types of life-sustaining treatment you do or do not want to receive.
- Specific family situations. Life is unpredictable. You need to consider (and proactively deal with) challenges like the following:
- If you have minor children, you can name a guardian for them and provide for their care through your estate plan. Without a named guardian, the decision of who raises your children will be left to the whims of a judge. Your children may even end up in foster care while the courts sort your affairs out.
- If you care for a dependent with a debilitating condition, provide for her and protect her government benefits using tools like the Special Needs Trust (SNT).
- If you’re married with children from a previous relationship, you need clear, properly prepared documents to ensure that your current spouse and children inherit according to your wishes.
- Probate. Probate is the court-supervised process of the distribution of a deceased person’s assets. A veritable avalanche of paperwork awaits your loved ones. But it doesn’t have to happen to your family! Through proper planning, you can keep all of your assets—such as your IRA, life insurance and family residence—outside of probate.
Estate Planning Involves Much More Than Minimizing Estate Taxes
Even prior to the Tax Cuts and Jobs Act, relatively few Americans needed to worry about the estate tax. However, virtually everyone faces one or more of the issues outlined above. Shockingly, a 2016 Gallup poll found that 56% of Americans do not even have a simple will. A 2017 poll conducted by Caring.com found similarly alarming news—a majority of U.S. adults (especially Gen-Xers and Millennials) do not have their estate plans in order.