Previously, each person in California and the rest of the United States was entitled to a federal estate tax exemption of $675,000. This meant that parents who wished to leave a monetary gift for a child tax-free could each give the child $675,000 and not have to worry about the federal government taking a portion of it. A new tax law has increased the federal state tax exemption, which may give people reason to update a will or trust.
Most people will not be subject to a federal estate tax, simply because the bar is raised so high. With the new law, the estate tax is raised to $11.2 million per person, nearly doubling the previous amount. This is partially meant to adjust to inflation and today’s current financial climate.
Why would the tax change necessitate a possible change in estate plans, especially if the huge increase does not affect most families? Couples who did their estate planning years ago may consider that the changes are significantly outdated. If they originally stipulated in their will that their children will divide the amount of the estate that remains tax-free, without having specified a set amount, while the surviving spouse retains the rest of the estate, this increase may mean that the entire estate goes to the children with nothing left for the still-living spouse.
Tax laws and other aspects related to estate planning are always changing. Family dynamics also change. It is important to frequently review estate plans, regardless of whether one’s assets exceed the estate tax threshold.
Source: Kiplinger, "Update Estate Plans in Light of New Tax Law," Eleanor Laise, April 28, 2018