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Estate Planning Blog

Serving Clients Throughout North Central Missouri

estate planning newsletter

Prepare Now for Coming Estate Tax Changes

The TCJA nearly doubled the lifetime estate and gift tax exemption from $5.6 million for individuals (and $11.18 million for married couples) to $11.18 million and $22.36 million for married couples), indexed for inflation after 2018. Right now, the exemption stands at $12.92 million per person and $22.84 million for couples, as reported in a recent article, “How To Prepare Clients Now For Looming Estate Tax Changes” from Financial Advisor.

All this changes on January 1, 2026, resulting in a roughly 50% reduction over the next few years. Individuals could see their federal estate tax exemption dipping to approximately $7 million, while couples could see a decrease to $14 million.

In anticipation of this drastic change, estate planning attorneys are reviewing plans now with clients to implement an appropriate course of action in less than three years. This is especially important for clients who might not have been impacted by estate tax laws in the past but who will be in 2026 because of a combination of the lowered amount and any growth in their assets.

Here are some strategies for preparing for the new lowered levels:

Review the complete estate plan with an estate planning attorney. Without a proper estate plan, it’s easy to lose sight of the value of all assets and may be entirely in the dark concerning estate tax liabilities. For instance, a boomer who hasn’t reviewed their estate plan in twenty years could see an enormous change in the size of their assets, possibly bringing them across the $7 million estate tax exemption threshold. Failing to address this could risk financial security in retirement and significantly impact their heirs.

Create a strategy with the information you have now. First, review your estate plan with an eye to moving assets out of the estate. You should then consider the overall goals and time horizons to determine the best way forward. There are several optimal strategies, including using annual gift tax exclusion, which as of 2023, is up to $17,000 per person.

The use of trusts is a well-known facet of estate planning. Which type of trust is used depends upon your specific situation. Trusts generate income and protect access to assets used for living expenses, reduce taxation on the estate, protect assets from creditors and keep a family’s financial assets and affairs private upon death.

Other strategies to consider:

Allocating assets to a 529 education plan, allows you to put money aside for the education of loved ones. It can be used for education from kindergarten to college, graduate coursework and more. There is also an option of accelerating gifting by giving up to five years of contributions in one year per individual.

Suppose you wish to pass assets to grandchildren, instead of gifting them during their lifetimes. Consider generation-skipping trusts, which allow you to create a separate fund for grandchildren under age 37.

There is no one-size-fits-all approach to estate planning. However, a discussion with your estate planning attorney will clarify your wishes and allow you to plan for the future.

Reference: Financial Advisor (May 8, 2023) “How To Prepare Clients Now For Looming Estate Tax Changes”

estate planning newsletter

What Does the Role of Estate Executor Entail?

Being named as the executor of a will is an honor and an obligation. However, depending on the size of the estate and your relationship to the deceased, performing the duties of an executor can feel like a second job, says Kiplinger’s recent article entitled “What to Do When You’re the Executor.”

This can be a real challenge for adult children who are responsible for executing the estate of the last surviving parent. These executors are often required to distribute assets among several beneficiaries, sell the family home and look over all the family belongings. If the family is a bit dysfunctional, if it’s a big estate, or if their parents’ estate planning was poor (or nonexistent), it’s even more time-consuming. Let’s look at some basic steps most executors should follow:

Get a dozen copies of the death certificate and file the will. Copies of the death certificate are usually available from the funeral home. You must then file the will and death certificate with the county probate court. If probate is required, you must get a letter from the court, known as a letter of testamentary. This gives you legal authority over the estate.

Assemble your pro team. In most instances, you’ll need an experienced estate planning attorney to help you navigate the probate court. The attorney who helped the decedent draw up his or her will is a good choice, as he or she is most likely familiar with the estate.

Create an inventory of assets. If the deceased didn’t keep good records of bank and brokerage accounts, insurance policies, tax returns, and other documents, you may need to track down some of these accounts.

Protect personal property. If the estate includes a home, the executor is responsible for maintaining the property and paying the mortgage, taxes and insurance until it’s sold.

Set up a separate bank account. An executor will need to pay bills and make deposits on behalf of the estate, so set up a bank account in the name of the decedent’s estate. This will also provide you a record of transactions that will prove useful if anyone challenges your administration of the estate.

Pay the decedent’s debts. This is a crucial action. If the decedent’s unpaid bills and other debts aren’t paid before the estate is distributed to heirs, creditors could sue. The executor is also responsible for filing a state and federal tax return to pay any taxes owed (or claim a refund).

Communicate with the beneficiaries on a regular basis. Don’t leave the heirs in the dark.

Distribute the assets. Finally, you can distribute the assets after all debts are paid, which may first require court approval.

If this sounds like more than you can handle, you can decline to act as an executor. Sometimes that’s the right choice.

Reference: Kiplinger (Oct. 29, 2021) “What to Do When You’re the Executor”

 

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