Estate planning is an ongoing process. The estate plan that you initially create is going to reflect your life at that time. Things invariably change. In addition to changes within your own life, there can be relevant changes that impact the society as a whole, such as changes to tax laws.
When tax laws change, your existing estate plan may no longer be appropriate. If you are not aware of the lay of the land at all times, your family could ultimately pay a hefty price.
Federal Estate Tax
The maximum rate of the federal estate tax is 40 percent. The imposition of a tax of this magnitude could have a significant impact on the financial viability of your family for generations.
Your estate tax exposure (or lack thereof) will depend on the extent of your assets as they compare to the amount of the federal estate tax exclusion. In 2014 the amount of the exclusion is $5.34 million.
The exclusion is adjusted annually to account for inflation, so you may see a slightly higher figure next year. You should certainly be aware of the exact number, but these relatively small adjustments are probably not going to be enough to render your existing estate plan obsolete.
However, significant changes could come down the pike. For example, last year the White House proposed a budget that would reduce the amount of the estate tax exclusion. It would go down to just $3.5 million in 2018, and the maximum rate would be increased from 40 percent to 45 percent. This $3.5 million/45 percent framework was in place back in 2009.
We would like to emphasize the fact that this was a proposal; it is not a fact of life. However, changes to existing laws are possible. In addition to proposals that would increase the estate tax, there are always legislators that want to reduce it or eliminate it altogether.
As a resident of the state of New York you must be aware of the New York State estate tax as well as the federal estate tax. At the current time the amount of the New York State estate tax exclusion is $1 million. The maximum rate of this graduated tax is 16 percent.
State laws are always subject to change via legislative mandate. You should certainly be aware of the current state-level estate tax parameters at all times.
When you put your first estate plan in place you should be aware of the fact that it is probably going to need revisions over the years. If you develop an ongoing working relationship with your estate planning lawyer from the start, you can stay in touch and get together for estate plan reviews at regular intervals.
When you are alert and proactive you can be optimally prepared at all times.