by Randy Porzel, Senior Advisor
Whether you like it or not, you’ve probably spent the last month discussing the new tax law changes with your friends and family, trying to calculate how it will affect you. And while reading through the 600 page bill (as I’m sure you did), it may have been easy to overlook the changes to the federal estate tax law as it relates to transferring wealth to your heirs. In case you missed it, here are a couple of changes coming in 2018:
- The Federal Estate Tax Exemption has increased from $5,490,000 to $11,200,000 per person ($22,400,000 for married couples) through 2025. In 2025, it is set to sunset back to the 2011 exemption, $5,000,000, indexed for inflation ($6,600,000 at 2% inflation).
- The annual gift tax exclusion has been increased to $15,000 per person. This allows you to gift $15,000 to any non-spouse individual without filing a gift tax return. You and your spouse can gift a total of $30,000 per person.
While this is great news for those with significant estates, don’t be fooled by the large numbers. For those that are Illinois residents, the Illinois State Estate Tax Exemption remains at $4,000,000 per person, and cannot be shared with your spouse.
For example, let’s assume John has an IRA worth $1,500,000, personally owned life insurance with a death benefit of $2,000,000 (payable to his wife, Jane), and an investment account worth $1,000,000. Without proper estate planning, John would not owe any Federal Estate Tax, but would owe Illinois State Estate Tax on $500,000 (the amount in his name that exceeds $4,000,000).
For those yet to look at their Estate Plan, I urge you to make 2018 the year to look at this for the following reasons:
- Guardianship – If you have children under 18, who would care for them if you passed away? Without a Will, the courts would determine their guardian. This may or not be the person(s) you want caring for your children and their finances.
- Asset Distribution – How do you want your assets distributed if you were to pass away? Under Illinois State Law, your Spouse would inherit your assets. If you have children, they would inherit ½ of your assets, and your Spouse would inherit the other ½.
- For example, let’s assume you and your spouse have 2 children (3 and 5) and you pass away with a savings account in your name valued at $100,000. Without a will, your wife would only receive $50,000 and each child would receive $25,000.
- Powers of Attorney – Assuming you were incapacitated, who would step in to manage your finances and make healthcare decisions? In Illinois, Powers of Attorney are statutory documents easily drafted by any estate planning attorney.
- If you have children over the age of 18, it also makes sense to have them name you as their power of attorney to make any major medical decisions.
- Avoid Probate – transferring assets to a Revocable Living Trust can help you avoid probate court costs associated with settling one’s estate. Additionally, a Trust allows you to designate a successor trustee to manage the assets within your own parameters when you are no longer able to do it yourself.
Regardless of your age or financial situation, reviewing your estate plan is an essential part of your Financial Plan to ensure a secure future for your family. More importantly, I urge you to discuss your Estate Plan with your Financial Advisor to ensure it will be handled the way you intend.
The views expressed represent the opinions Private Vista, LLC and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.
Additional information, including management fees and expenses, is provided on Private Vista, LLC’s Form ADV Part 2, which is available upon request.