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Are you planning for your family's wealth transfer?

Are you planning for your family's wealth transfer?

As I previously blogged back in April, President Trump signed into law the first significant reform of the US Tax Code since Ronald Reagan. Today, I would like to further explore the additional implications this law will have on your finances. Clearly, the new tax act will affect how we make decisions on our estate, buying a home, health insurance, setting up a business, and even porce agreements. But what about family wealth transfer precisely?

Planning for family wealth transfer is an important step in assuring assets are passed down to your loved ones with the least amount of tax consequences. While the new law did not repeal the estate tax as originally expected, it temporarily doubled the estate tax exemption for single filers to $11.2 million from $5.6 million, indexed for inflation. For a married couple, this means a $22.4 million exemption for the next eight years.

Keep in mind, this provision expires (or sunsets) at the end of 2025 and since death is unpredictable, wealthy inpiduals should still plan for the estate tax using traditional strategies such as purchasing life insurance policies inside irrevocable life insurance trusts, which allow for the possible exclusion of life insurance proceeds from the estate tax by acting as both the owner and beneficiary of life insurance policies.

Don’t forget! It is critical that the trust is drafted and funded properly to ensure your family members receive the full benefit of your life insurance proceeds with the least possible estate tax applied. The law did not modify the current income tax basis rules related to gifts and transfers at death.

Although some may see less of a need to undertake material trust and estate planning, they in fact may miss potentially compelling opportunities. Not to mention that the benefits of avoiding probate alone are significant. Higher exemptions provide increased opportunities for multi-generational, legacy wealth planning. Many are utilizing trust and estate planning increasingly for qualitative and values-based issues above and beyond tax issues. What does this mean? This means that qualitative measures might include thresholds as to when, how much, and for what reasons future generations can access legacy wealth from a family trust.

So, what do I recommend to those with existing estate and wealth plans? I encourage you to have your plans reviewed particularly if they were created before 2013. Many current documents will try to maximize funding of the credit shelter trust and may include formulas based clauses in order to do so. With the higher exemptions, this may now result in far less assets being left to a surviving spouse than was originally intended. If you need me and my team to review one of your existing plans, send me a quick email at: This email address is being protected from spambots. You need JavaScript enabled to view it.

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