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Changes to estate tax laws may thwart the purpose of one's will

People in St. Paul may have gone through the process of drafting a will and have considered the matter done. However, recent changes to estate tax laws may warrant a dusting off of a previously created will. For wills drafted prior to 2018, this could be especially important if the will does not contain a specific amount of money that is to be funneled into a trust for one's children. These wills might simply have broader language stating that their children should inherit per the current amount of the federal estate-tax exemption, and that the rest of the person's estate (usually a bigger amount) should be funneled into a trust for the person's living spouse.

However, recent tax law changes have made this matter potentially problematic. This is because the estate tax exemption has gone up two-fold starting in 2018, from $5.49 million to $11 million. Therefore, the broad language used in the above example could make it so that a person's children inherit more than the person's living spouse, which may go against the person's wishes. This may be especially true for smaller estates.

This situation is something that might not have been anticipated when the will was first drafted. For example, prior to 2018, the amount of the estate tax exemption would only go up a little bit annually to keep in line with inflation. However, the large jump from 2017 to 2018 means that not only has the exemption amount skyrocketed, but this higher amount will also be adjusted each year to keep in line with inflation.

Many people utilize two trusts so that their surviving spouse can be provided for and the person's children can inherit from their estate tax-free under the exemption. However, given the new changes in the estate tax laws, it is important for a person to re-evaluate if they are using this strategy effectively. Most people who create an estate plan do so with certain intentions about who should inherit what. And, as these changes show, reviewing one's estate plan periodically is simply part of the ever-ongoing estate planning process.

Source: CNBC, "Tax bill creates a possible $11 million windfall for your kids. Here's how," Sarah O'Brien, Feb. 15, 2018

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