Wills & Trusts

Putting an estate plan together is similar to assembling a puzzle, and wills and trusts are often important pieces of the picture.

Why Your Will May Be Out Of Date

  • Not only does your family change over time, so do tax laws.
  • Key dates can make a difference to your estate planning documents.

Why dates matter

Do you need to update your will or trust? The first question is: “When was it created?”

If it was 10 to 15 years ago or longer, it may not be current any more. Your family and personal situation have probably changed a lot since then. Perhaps your will or trust was created when your children were in high school, but now they’re married with kids. Tax laws have changed a lot over the years too.

Even if your estate planning documents are still valid, they may no longer work the way you intended. If your will or trust predates these five key “freshness dates,” it may be time to visit your attorney for a review.

If your will or trust predates these five key “freshness dates,” it may be time to visit your attorney for a review.

So how do you know if your estate plan is out–of–date?

April 14, 2003

This date relates to the required compliance date of the privacy regulations under the Health Insurance Portability and Accountability Act (HIPAA). This law was enacted in 1996.

The HIPAA privacy rule imposed strict guidelines on the disclosure of “protected health information” without the patient’s explicit permission.

While these privacy protections are a good thing, they can also become problematic. Your executor, trustee or agent (under a durable power of attorney) may need to deal with your employer, insurer or medical providers such as doctors, clinics and hospitals. An authorized person must have a written document executed by you, with very specific language mandated by HIPAA.

If your will, revocable trust, durable power of attorney or health care power of attorney was executed before April 14, 2003, your executor, trustee or agent may not be able to work effectively with your medical providers and insurers. To fix this problem, have an attorney update your documents to include the language required by HIPAA.

January 1, 2005

This date is important if you live in a state that imposes its own state-level estate or inheritance tax.

Before 2001, there was a federal credit for state death taxes (the size of the credit varied with the size of the estate). Back then, there was not much incentive to make plans for avoiding state death taxes because those taxes were fully offset by the federal credit.

The Economic Growth and Tax Relief Act of 2001 (EGTRA) phased out the credit between 2002 and 2004. As a result, since January 1, 2005, state estate or inheritance taxes apply on top of any federal estate tax. Today a number of states impose their own state estate tax, and many states have an inheritance tax.

Visit your attorney to start planning for state taxes if they’re a concern for you.

If you live in a state that imposes its own estate tax and your will or revocable trust was executed before 2005, visit your attorney to start planning for state taxes if they’re a concern for you.

December 17, 2010

This is the date of enactment of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (often called “TRA 2010”). This increased the federal estate tax exclusion to $5 million for 2010 and indexed it to inflation after that. For 2018, the federal estate tax exclusion is $11.18 million.

If your estate plan was created before December 17, 2010, your estate planning documents may contain federal tax planning provisions that are no longer needed. Your attorney might be able to recommend an alternative plan now.

In other situations, however, your estate plan may need to become more complex. For example, if you live in one of the 20 states that impose a state estate tax or inheritance tax, your attorney might recommend new strategies to deal with state estate taxes, which often begin at a much lower threshold.

January 2, 2013

The American Taxpayer Relief Act of 2012 (ATRA) became law on January 2, 2013. It made the “portability election” a regular feature of federal estate tax planning. This election lets an executor transfer a deceased spouse’s unused federal estate tax exclusion to a surviving spouse. This can be an important estate-planning tool.

In effect, the surviving spouse can “stack up” the deceased spouse’s exclusion on top of his or her own exclusion.

If you are married and your will or trust was drafted before January 2, 2013, you could be missing some valuable tax planning opportunities.

December 22, 2017

The “Tax Cut and Jobs Act” of 2017 essentially doubled the “basic exclusion” to $11,180,000 (2018) per person, inflation adjusted, through 2025.

Many existing estate plans for married couples were designed back when the exclusion was much smaller—say $2 million, $1 million, or even $600,000. These older plans often call for automatic, maximum funding of a “credit shelter” trust at the first spouse’s death.

These older documents will frequently result in “over-funding” a credit shelter trust at the first spouse’s death. That could result in less-than-optimal use of the deceased spouse’s exclusion, and sacrifice the opportunity for a “step-up” in cost basis at the surviving spouse’s death. If you are not likely to owe federal estate taxes, your attorney may recommend revising your plan to achieve better income tax results for your beneficiaries.

It’s also important to consider the scheduled reduction in the applicable exclusion, which takes effect in 2026. Some people who don’t have estate tax exposure today may need to plan for potential estate taxes after 2025.

Next steps

  • Review your estate planning documents to determine when each was created.
  • Talk to your attorney about each of your estate planning documents.