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How estates could be affected by changes to tax law

Formulating an estate plan in New Jersey does not mean that it must remain static and never change until the time it is needed and the testator has died. Changes to the individual circumstances and to the law will make it necessary to address potential issues and change the estate plan as needed. One issue that is garnering significant attention is the new tax law and how it will affect estate plans. Under the new law, there are changes to multiple aspects of the way taxes are assessed on estates. People should act accordingly.

Those who have substantial assets should be cognizant of how their estate plan will be affected. For example, a trust can give protection if there are creditors or the testator is in the middle of a divorce. It can allow the testator to determine how the wealth is given to heirs and keep the wealth beyond the lifetime of the testator and the heirs. Portability election lets a surviving spouse use the exemptions for federal estate and gift taxes and will stay the same under the new plan.

The estate tax can be problematic for those with major assets, but strategies to transfer wealth can still work. Some people want to give their heirs gifts to avoid them being taxed. This can be useful, but it is important to remember the exclusion amount is capped at $15,000 and can be adjusted for inflation. With gifts, the donor is subject to taxes if they are made during the person's lifetime. However, there are alternative considerations such as the heir getting the asset the testator was providing as well as deriving tax benefits.

An irrevocable trust could be subject to the estate tax depending on the circumstances. Finally, those with a closely held business can use the changes to the exemption amount until 2026 when it will return to the current number of $5 million, contingent on inflation. For a successful business and families with wealth that goes beyond $5 million, this must be considered for the long-term.

People with major assets and wealth undoubtedly welcomed the tax changes as it is widely believed to benefit those who are well-off. Seeking help with this or any other matter related to estates can be accomplished by discussing the case with an attorney experienced in estate planning, wills and inheritance.

Source: thinkadvisor.com, "9 Ways New Tax Law Could Affect Clients' Estate Plans," Melanie Waddell, Jan. 10, 2018

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