The taxation of estates is in the headlines again as President Biden and several members of congress have introduced proposals to change the law. Possible changes have included a reduction of the estate exemption from $11,700,000 to $3,500,000; increasing the top estate tax rate from 40% to 45%; taking away the basis step up at death for individuals with gains exceeding $1,000,000; and eliminating or significantly changing strategies involving trusts and the use of discounts in transactions with family members. The most recent House Ways and Means Committee proposal reduces federal exemptions to around $6,000,000, but would not eliminate the basis step up. While nothing is finalized, the changes implemented could substantially change how many individuals spend down their assets and structure their estate plans.

The Right Time

Many individuals put off making estate document changes until a new law is enacted or it’s clear a proposal will become law. While on the surface this strategy seems prudent, we caution against it since the last time there were major estate tax law changes, many attorneys were booked and had to turn away clients, which is why we encourage you to start the process now.

Tax law changes are one reason an estate plan should be reviewed, but there are many reasons your plan may need an update. The mere passage of time is sufficient to warrant a review of your estate plan. It is recommended you review the documents every three to five years or after any major life changes for you or your family. Consider the following scenarios:

  • If your marital status or the marital status of one of your children changes, it’s a good time to make sure your estate plan documents still provide the intended result upon your death.
  • The addition of a new baby or adopted child is another reason to review your documents. Make sure the person named as guardian of your children is still the person you want to fill the role.
  • Have one or more of your beneficiaries predeceased you? If so, it is important to revise your documents and/or beneficiary designations to redistribute your property among beneficiaries.
  • When you move from one state to another your estate documents will still be valid if they were properly executed in your prior state of residence, however, they should be updated to conform to the laws of the new state. Estate laws vary from state to state. For example, while most states don’t assess an inheritance or estate tax, Minnesota and a few others still do.
  • A revocable living trust may need to be updated for the named trustees and you should consider if the named personal representatives of your will are still appropriate.
  • If you’ve purchased new property, be sure you have planned for it in your estate and, if it flows through your trust, ensure that it is titled in the name of the trust.
  • Consider whether your beneficiaries have special or changed needs that you want your estate plan to address.

It’s also important to keep in mind your will and trust are not the only documents you should periodically review. Both your financial power of attorney and health care directive should be reviewed to make sure they are still in line with your desires.

Having an updated estate plan in place ensures your family knows your last wishes and will provide you with significant peace of mind. We encourage you to take some time to think through your plan and if any of your wishes have changed. If you feel you may need to make changes to your estate plan documents, or if you just want to talk through your plan, please contact your CCM advisor.

NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.