hands around a crystal ballCreating a will, trust, or any type of estate plan has always involved dealing with an uncertain future. Consider that just 20 years ago in 1997, the estate tax had an astonishing 55% rate with only a $600,000 exemption. Back then, tax-driven estate planning was a mathematical necessity for a large segment of the population.


Fast forward to 2020. Not only do we now have a generous $11.58 million exemption and a lower 40% rate, However, we also have renewed emphasis and action from both parties on changing the estate tax exemption. So what does this mean for you, as you’re planning for the future?


I Can’t Do Anything About the Changing Estate Tax Exemption, Right?

Nothing could be further from the truth! There is a good chance the estate tax exemption will be reduced.  Additionally, due to deficits from COVID-19 shutdowns, California is looking for new ways to tax the population and fund the state budget. California has already announced that it will look strongly at creating a state death tax.


Even though the estate tax may be raised in future years, you can always decide to use your exemption now, rather than wait until you die.  Planning for the estate tax now, can provide you with the following advantages:


  1. Use the current high estate tax exemption. By planning now, you can use the current high estate tax exemption to move up to $11.58 million worth of assets out of your estate this year.  If the tax laws change in the future, your planning will be grandfathered in, and you will not have to pay further estate taxes on the assets that you have removed from your estate.


  1. Growth of assets outside the estate. In addition to using the high estate tax exemption, you also get the added benefit of moving assets out of the estate at current values.  Since most assets usually appreciate in value, all of the appreciation will be outside of the estate and you do not have to use any exemption to get that increased value out of your estate.


  1. Use of further increases in estate tax exemption. Let’s say, however, that the estate tax exemption is increased.  You can still use any increase in the estate tax exemption in future years or when you pass away.


  1. Leverage your exemption. By being proactive with your planning, you can also leverage your exemption by using strategies that reduce the appraised value of your assets, thereby allowing you to use less exemption to remove more assets from your estate.


Planning for Your Family

Although there was a lot of tax-driven planning in the past, in recent years estate planning has largely focused on preserving family unity, protecting assets, ensuring privacy, and effectively passing along financial and emotional legacies.


While we wait for Congress to act, it is also worth noting that the estate tax was effectively repealed for more than 99.9% of American estates when the exemption was raised to $11.18 million (and indexed for inflation) in 2018. The vast majority of estates fall below this threshold and need no special planning to avoid the estate tax. But don’t think you’re out of the woods because you have less than $11 million.


Today, the focus of estate planning has shifted away from death taxes to other concerns that affect most families. We can work with you to protect you and your family against costly, public probate, guardianship, or conservatorship court proceedings and also further your legacy goals.


You might be worried about some of these things happening to your family:

  • A financially irresponsible child or grandchild wasting their inheritance simply because they lack the financial maturity to handle wealth.
  • A divorcing spouse of one of your heirs taking advantage of family wealth.
  • Family discord lurking under the surface that tears your family apart, especially after the death of the patriarch or matriarch.
  • A lawsuit, judgment, or bankruptcy that causes your family to lose their inheritance.
  • Alzheimer’s or another cognitive impairment affecting you or someone else in your family.


Luckily, we have well-developed, flexible legal strategies (such as lifetime trusts, standby special needs trusts, and robust incapacity planning, to name a few) for overcoming these issues. Although estate planning cannot necessarily repair a damaged family relationship, proper planning can help make sure it does not get any worse.


So, there’s no crystal ball. Where should I go from here?

According to WealthCounsel’s 2016 Estate Planning Literacy Survey, about 74% of Americans find estate planning to be a confusing topic. So, you’re not alone if you’re unsure about your next steps. We’re here to help.


If you don’t yet have a will or trust, now is the time to explore getting one. If you have an “old” will or trust, now is the time to talk with us about whether you need an update. Modern families need modern estate planning solutions, and we are ready to help you create a flexible estate plan that works now, and will work in the future, even if the current tax laws change (even though no one has the proverbial crystal ball).