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How the higher estate tax exemption may affect planning

Although the tax bill signed into law by President Trump in 2017 increased the estate tax exemption to over $11 million for individuals and more than $22 million for married couples, New York residents might still want to keep other taxes in mind when creating an estate plan. There are strategies people can follow to reduce both transfer and income taxes.

Assets that produce high income can be placed in a trust that pays a beneficiary in a lower tax bracket. Contributing more to charity may help in some situations. There may be a number of other strategies available as well.

Despite the change in the estate plan exemption, there might be several reasons that couples would prefer to use trusts and other tools instead of simply having the entire estate go to the surviving spouse. A bypass trust can protect assets for children from a previous relationship as well as from creditors. Couples who want to do multiple generational planning might want to consider each having a dynasty trust since the generation-skipping tax exemption is not portable. A bypass trust may also protect assets if the tax exemption decreases by the time of the death of the surviving spouse.

This tax exemption is due to sunset in 2026. People may want to consider using lifetime transfers until that point to permanently preserve its benefits.

Planning is important even for people whose estates are worth considerably less than the exemption amount. In addition to arranging for people to receive assets, they also allow people to make plans in case they become incapacitated. For example, financial and health care powers of attorney appoint people to take care of a person's financial and health care decision making if the person is unable to do so. A living will specifies the types of life-sustaining procedures a person wishes to have.

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