Potential Changes to the Federal Estate Tax and What They Could Mean for You

A recent article from WealthManagement.com about potential changes to the federal estate tax may have important implications for you in the near future. While no specific plan has been presented, it is important to continuously evaluate your estate plan and stay abreast of any potential changes to the law that could affect your assets.

What is the federal estate tax?

The federal estate tax, sometimes disparagingly referred to as a death tax, is a tax imposed on your right to transfer property valued over a certain amount that kicks in when assets are distributed to heirs according to a Decedent’s will or intestate succession in the case of death without a valid will in place. The threshold for exempt estates changes year-by-year according to a formula approved by Congress. Basically, upon death an estate is appraised and given a value from which certain deductions can then be made. Once such eligible deductions are made, a “Taxable Estate” value remains. For Decedent’s passing in 2017, the federal estate tax only applies to estates with a taxable value of $5,490,000 or more. If a Decedent’s estate has a leftover exemption value – in other words, if a Decedent’s estate is less than the threshold for the year in which the death occurs – and leaves behind a surviving spouse, the remainder of the Decedent’s exemption may be passed on to the surviving spouse which could result in a higher exemption for that spouse. There are several other complex provisions related to how an estate is given its taxable value that an experienced estate planning attorney can help you understand.

What are the potential changes?

Many members of the United States Congress have long loathed the federal estate tax for a number of reasons, including what they see as a very high tax rate related to it. Currently, the opportunity to reform or remove the federal estate tax is more likely than it has been in the past. According to the article, one potential proposal includes effectively eliminating the current federal estate tax structure and replacing it with a new way of applying the capital gains tax at a lower tax rate. Whether this or a similar plan will be enacted remains to be seen, as tax laws tend to be fluid and change often.

If the federal estate tax is removed or reformed, it may have important implications for your estate planning or for estate plans that have already been created. It is also important to remember that even if the federal estate tax changes, in most states there are still potential state-level estate taxes that could apply to your estate – including New York. Many estate plans are designed in a way that minimizes the potentially negative impact that related taxes can often have. It is important to speak with an experienced estate planning attorney whenever changes to tax laws occur to ensure that your current estate plan complies with new tax laws and your wishes for the distribution of your assets after your death. Some changes to tax laws can have far-reaching effects on the distribution of your assets, and your estate planning attorney can help you understand how such distribution could be affected by applicable new laws.

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