Estate Tax Planning for an Uncertain Future

In 2016, most people will not need to use tax-based planning in their Estate Plans. In fact, only about 0.5% of people will die with an estate valued over the current federal estate and gift tax exclusions amount: $5.45 million. However, if you’ve been paying attention to Congress and the federal estate and gift tax exclusion amounts over the last decade or so, you would know that Congress is unpredictable and that the exclusion amount changes quite often. So, it’s important to create a plan that will work for your current tax position, but also be willing and able to regularly review and revise your plan for changes in the law, including changes to the federal estate and gift tax exclusion amount.

Case in point, President Obama recently published his proposed budget plan which includes changes to the tax code. Among many other changes, Pres. Obama proposed (1) changing the estate tax exclusion amount back to the 2009 amount: $3.5 million;  (2) lowering the gift tax exclusion amount to $1 million; and (3) raising the tax rate from 40% to 45%.

For most people, that’s not a significant change – they still don’t have $3.5 million in taxable assets and don’t intend to make $1 million in gifts. However, for some it may make a world of different. The bigger issue is that it signals an intention to eventually lower the exclusions and impose a tax burden on more people. The pool of people impacted by estate taxes will most definitely increase from 0.5%.

Estate tax exclusion amounts is not the only area of law that could change in the future. We are at the mercy of Congress and the state legislature, and sometimes changes they make can undermine your entire estate plan. It’s important to stay invested in and up-to-date on your estate plan and be willing to regularly review it to make sure it will always do what you intend.

Paul Yokabitus