It’s a good time to re­view your es­tate plan

The Mercury News - - Business - Julie Ja­son

Last week, I had a chance to speak with trust and es­tates at­tor­ney Laura Beck, newly ap­pointed chair of the Pri­vate Clients Group of Cum­mings & Lock­wood. C&L has of­fices in Con­necti­cut and Florida.

We dis­cussed whether tax law changes that came into ef­fect in the new year called for clients to re­view their es­tate plan­ning. Let me share some of our di­a­logue.

If fed­eral and state ex­emp­tions ex­ceed a client’s net worth, is there any ur­gency to re­view es­tate plan­ning doc­u­ments, par­tic­u­larly since fewer es­tates will be sub­ject to those taxes? The an­swer is yes — es­tate plan­ning is a lot more than tax plan­ning. Even young sin­gle peo­ple with few if any as­sets need to ad­dress in­ca­pac­ity plan­ning and make sure what they have — which may not be sig­nif­i­cant fi­nan­cially but mat­ters to them — is prop­erly planned for.

For those with as­sets, the need to re­view a plan is even more im­por­tant in light of the chang­ing tax en­vi­ron­ment.

The cur­rent 2019 fed­eral ex­emp­tion amount is $11.4 mil­lion per per­son, up from $11.18 in 2018 and $5.49 mil­lion in 2017. That means 2019 dece­dents with as­sets be­low $11.4 mil­lion will not be sub­ject to fed­eral es­tate taxes.

What about state es­tate or in­her­i­tance taxes? In Con­necti­cut, for ex­am­ple, the 2019 ex­emp­tion amount is $3.6 mil­lion, up from $2.6 mil­lion in 2018 and $2 mil­lion in 2017. That means 2019 dece­dents with es­tates less than $3.6 mil­lion will not be sub­ject to Con­necti­cut es­tate taxes. Some states, such as Florida, have no es­tate or in­her­i­tance taxes, thereby “ex­empt­ing” 100 per­cent of a dece­dent’s as­sets.

You would think that these new ex­emp­tion amounts that kicked in for 2019 are ben­e­fi­cial to all, so why would any­one need to do a re­view now?

“The big­gest is­sue is peo­ple who had an es­tate plan that had the ex­emp­tion go­ing to some­one other than their in­tended ‘main’ ben­e­fi­ciary,” ex­plained Beck.

For ex­am­ple, a hus­band’s 2015 will pro­vides that the Con­necti­cut ex­emp­tion amount, which was then $2 mil­lion, goes to the chil­dren, with the bal­ance to the wife. As­sume the hus­band owns $10 mil­lion in his own name. If he died in 2018, when the Con­necti­cut ex­emp­tion was $2.6 mil­lion, his wife would have re­ceived $7.4 mil­lion. If he dies this year, his wife would re­ceive $6.4 mil­lion, and the kids $3.6 mil­lion. Was that the hus­band’s in­ten­tion?

The take­away here is not to be com­pla­cent.

How your es­tate plan­ning doc­u­ments are drafted, es­pe­cially if you have for­mula clauses that are tied to tax­able and non­tax­able amounts, can have a much dif­fer­ent ef­fect than you an­tic­i­pated when you last re­viewed your es­tate plan. The worst case, as Beck pointed out, is un­in­tended con­se­quences, such as leav­ing out a spouse al­to­gether.

The so­lu­tion is to have the for­mula clause in­clude a cap; for ex­am­ple, leave all amounts free of fed­eral and state taxes to the chil­dren up to a spe­cific dol­lar amount or per­cent­age of the es­tate, with the re­main­der go­ing to the spouse. That way, es­tate taxes can be min­i­mized, and the tes­ta­tor’s in­ten­tions im­ple­mented.

This dis­cus­sion may leave you with this ques­tion: Should I call my es­tate plan­ning at­tor­ney to re­view my es­tate plan? In my decades­long ex­pe­ri­ence as a per­sonal money

man­ager to high-net­worth fam­i­lies, I be­lieve in be­ing cur­rent on es­tate plan­ning doc­u­ments, pow­ers of at­tor­ney, trusts, liv­ing wills and health care prox­ies.

I also be­lieve in know­ing where as­sets would go in the event of death. (Check www. julie­ja­ for de­tails on how to do this.)

Beck says she al­ways start con­ver­sa­tions with “Tell me what you want.” Her job is to make sure your wishes are im­ple­mented in a tax-ef­fi­cient fash­ion.

Julie Ja­son, JD, LLM, a per­sonal money man­ager (Jack­son, Grant of Stam­ford, Conn.) and au­thor, wel­comes your ques­tions/com­ments (read­[email protected]­ja­son. com). Her awards in­clude the 2018 Clar­ion Award, sym­bol­iz­ing ex­cel­lence in clear, con­cise com­mu­ni­ca­tions. Her lat­est book, a cu­rated col­lec­tion of Julie’s col­umns, is “Re­tire Se­curely: In­sights on Money Man­age­ment From an Award-Win­ning Fi­nan­cial Colum­nist.” To hear Julie speak, visit www.julie­ja­ events.

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