There have been some big changes recently in the law applicable to wills, trusts, and estate planning in general. Everyone should consult with an estate planning attorney periodically to make sure that their estate plan is not only “good”, but that it won’t actually hurt the loved ones they leave behind as a result of changes in the law.

Two of the biggest changes in the law occurring in the last ten years have been the introduction of “portability” and the rising rate of the estate tax exemption. These changes, if not addressed in your current estate plan, can have potentially very damaging consequences to your loved ones.

“Portability” is an idea related to the estate tax, or what some people refer to as the “death tax”. With the introduction of “portability” into the tax laws, married couples generally now have much more flexibility in their estate planning. Prior to the introduction of “portability”, when one spouse died, the surviving spouse was forced to pay an estate tax to the federal government. Depending on the amount of money the deceased spouse left behind and depending on whether the appropriate estate planning documents were in place, the amount of money the surviving spouse was forced to pay to the federal government could be quite large. Now that “portability” exists, the deceased spouse’s estate tax exemption amount is automatically transferred to the surviving spouse and the surviving spouse oftentimes does not need to pay any money to the federal government upon the first spouse’s death.

Prior to “portability” being introduced into the law in 2011, it was often necessary to have complicated trusts built into a married couple’s estate plan in order to ensure that the surviving spouse would not be left with a crippling tax bill upon the death of the first spouse. Now that “portability” exists, it is often counterproductive to have these complicated trusts incorporated into one’s estate plan. Oftentimes, having an outdated estate plan can have harmful and unintended consequences.

For example, many people have “A-B Trusts” or “Bypass Trusts” or “Credit Shelter Trusts” incorporated into their estate plans. These trusts, by their very nature, often contain very restrictive language which prevents a surviving spouse from having complete control over his/her money upon the death of the first spouse. This restrictive language was necessary in order to make sure that the surviving spouse did not end up with a huge tax bill when his/her spouse died. In many cases, these restrictive trusts are no longer necessary and actually end up doing more harm than good by potentially tying up your money in a trust which you cannot freely access. In some cases, people’s assets could even go to unintended beneficiaries to the exclusion of the individual’s spouse or children.

The other recent big change in estate planning and tax law has been the increasing amount of the “estate tax exemption”. The estate tax (also known as the “death tax”) is the tax owed to the federal government from a deceased person’s estate upon that person’s death.

In 2005, the estate tax exemption amount was $1.5 million. This meant that if an individual’s net worth at his/her death exceeded $1.5 million, that individual would owe estate tax. The amount of that tax would be nearly 50% of the amount of every dollar over the exemption amount. For this reason, many people incorporated different types of trusts into their Last Wills and Testaments in order to minimize the tax bill which would inevitably come upon a person’s death.

In 2018, the estate tax emption amount is $11.2 million. This high exemption amount will remain around the same until at least 2025. Very few people have more than $11.2 million. But, if your net worth was around the $1 million range in the early 2000’s and you had estate planning done, it is quite likely that your estate plan is outdated.

What this means for many people is that if you have not had your estate plan updated recently, then you may want to consult with an estate planning attorney. Your estate plan may contain very restrictive language that, under the current law, does not provide you with any benefit and in fact only hurts your family by putting unnecessary restrictions on your assets when you die.