2018 Estate Tax Exemption Projections

Experts predict that the estate tax exemption for 2018 will increase slightly to $5.49 million for a single person and $10.98 million for couples.

The IRS has not yet announced what the 2018 estate tax exemption will be. However, expert analysts think there will be some slightly good news for wealthy people.

They predict that the exemption should increase to $5.6 million for a single person and more than $11 million for married couples.

At the same time, they predict that the annual gift tax exemption should also increase to about $15,000, as Forbes reported in “Estate Tax Exemption To Top $11 Million Per Couple in 2018.”

This should give wealthy people and their estate planning attorneys a little bit more flexibility, as they attempt to shrink estates to below the threshold.

While most people who might be affected by this exemption increase would prefer to see the estate tax repealed entirely, that is increasingly looking like it will not happen this year.

Congress has turned its attention to tax reform, but getting anything passed could be a long process and will likely continue into next year.

Repealing the estate tax is also controversial. If Democratic votes are needed to pass tax reform legislation, that might take the estate tax off the table.

If you have questions about your estate and how it might have an impact on the estate tax, then you should see an experienced estate planning attorney in your area.

Reference: Forbes (Sep. 15, 2017) “Estate Tax Exemption To Top $11 Million Per Couple in 2018.”

Cutting a Child Out

It is not all that unusual for a child to not live up to the expectations of parents. Sometimes parents will be so disappointed when that happens, that they will attempt to cut the child out of their estate plans. They might want to reconsider.

Wealthy parents often have extremely high expectations for their children. They want their children to go to school, get a good job, raise a family and do all of the things that made the parents so successful.

However, sometimes a child just does not live up to those expectations.

Sometimes there is a black sheep who does everything the parents would not want him or her to do.

If the problems are severe enough, then the parents might even stop contact with the child and seek to cut him or her out of their estates.

The latter is often a bad idea, as the Globe and Mail discusses in “Think twice, wealthy family, before cutting the black sheep out of your will.”

One big thing to consider is that a child who receives nothing has no incentive to not cause problems.

A no-contest clause can prevent someone who does receive an inheritance from challenging an estate plan that they do not like, but it cannot prevent someone from doing so who is set to receive nothing or very little from an estate.

This can make cutting a child out of an estate plan a very expensive proposition. This is because the child has no reason to not launch legal fights.

A black sheep child can also be more easily controlled by using an estate plan to incentivize that child into desired behaviors.

An estate planning attorney can help you create a trust, for example, that only distributes money to the child when certain actions are taken by the child.

Reference: Globe and Mail (Sep. 19, 2017) “Think twice, wealthy family, before cutting the black sheep out of your will.”

Same-Sex Couples Estate Planning

Legalizing gay marriage did solve most of estate problems for same-sex couples.

When the Supreme Court ruled that same-sex couples have a Constitutional right to get married, many problems those couples faced were finally resolved. For the first time, gay couples had legal protections in case one of them passed away.

The laws of intestate succession would protect them, in case they did not have an estate plan.

Couples were also given more rights to information about the health of the other, so they could assist in the treatment plan if one or the other of them got seriously ill.

However, not all potential estate planning issues for same-sex couples are fully resolved, as Cleveland Jewish News discusses in “Same-sex couples could face estate planning road blocks.”

One of the biggest problems remains child custody.

Prior to legalizing same-sex marriage, it was not normally allowed for both partners in a same-sex relationship to be put on the birth certificate of a newborn.

This has important implications for any children born prior to the Supreme Court’s decision.

The automatic right of custody of children in the event the spouse whose name is on the birth certificate passes away, cannot be assumed for the other spouse.

Of course, this is an ever bigger problem for same-sex couples who have chosen not to get married. They still have all of the other potential issues that existed previously.

It is extremely important that same-sex couples see an estate planning attorney.

The law is more favorable than it used to be, but it is not yet perfect at protecting their rights.

Reference: Cleveland Jewish News (Sep. 9, 2017) “Same-sex couples could face estate planning road blocks

Estate Planning Is Ongoing Process

It is not enough to get an estate plan once and leave it alone for all time. It needs to be constantly reviewed and updated to take account of changing circumstances.

Some people can get away with getting an estate plan once and never looking at it again. If someone never gets divorced, remarried, has more children or increases assets, then the first estate plan they get might be good enough for the rest of their lives.

This is true, even if that estate plan was written 50 years before the person passes away.

However, most people’s lives are not that constant.

In fact, most people have significant changes in their lives as they get older.

When things change, then estate plans normally need to be changed as well, as Forbes discusses in “Why Continuous Estate Planning Is Essential For the Rich and Super-Rich.”

The more wealth that you have, the more often you will probably need to change your estate plan.

This is because your assets will grow, how you hold those assets will change and tax laws will also change.

Nevertheless, it is not just the wealthy who need to constantly review and update their estate plans.

Everyone should do so, whenever there is a significant change in their lives that should be reflected in an estate plan.

Examples of these changes include divorce, remarriage, a new child, a new higher paying job, a new grandchild and much more.

If you have not changed your estate plan recently, then take a look at it.

Ask yourself whether it still does what you want it to do, given all the changes in your life.

If the answer is no or even maybe not, then talk to an estate planning attorney.

Reference: Forbes (Sep. 6, 2017) “Why Continuous Estate Planning Is Essential For the Rich and Super-Rich.”

Unusual Prenuptial Agreements

Prenuptial agreements are a great way to set the terms for what will happen if a couple ever gets divorced or when one of the spouses passes away. They are meant to protect assets when necessary, but they are increasingly being used for something more.

When two people get married, it is not unusual for one or more of them to have much greater wealth than the other. The wealthier person can use a prenuptial agreement to guard against a divorce that strips him or her of too much wealth.

Another common issue is when one or both of them enters the marriage with children from a previous relationship.

They might want to protect against a spouse getting too much of an estate and leaving their children with little to inherit.

Prenuptial agreements are an excellent way to guard against both of these potential problems.

They allow a couple to come to terms beforehand, so everyone is happy.

However, some people try to do more with prenuptial agreements, as Market Watch reports in “Prenuptial agreements contain more bizarre ‘lifestyle’ clauses.”

Prenuptial agreements are now being used to guard against undesired behavior by future spouses.

For example, some agreements now penalize a spouse for cursing, gaining too much weight or hanging out with friends too much.

The problem with these agreements, besides the obvious who would want to marry someone with those types of demands, is their enforceability.

A court is unlikely to enforce an agreement that penalizes a spouse for gaining an extra few pounds over the limits set out in the agreement.

Reference: Market Watch (Sep. 9, 2017) “Prenuptial agreements contain more bizarre ‘lifestyle’ clauses.”

The In-Law Problem

A big concern for many people when they are planning their estates, is that they do not trust the people their children married. They fear that a son or daughter-in-law will waste their children’s inheritances.

The situation where parents do not get along with their sons and daughters-in-law is a Hollywood cliché. TV sitcoms often feature running storylines featuring the cliché that play out over multiple seasons.

There is a reason for the cliché.

It is based in reality.

There is often tension between in-laws.

In estate planning, this plays out with the parents being wary that their son-in-law or daughter-in-law will meddle in the inheritance of the parents’ own children and waste the inheritance.

A recent example comes to us from the U.K., where someone wrote into a This Is Money advice column and asked how to protect a child’s inheritance from a bad son-in-law.

The article title asks this question: “I have a terminal illness and our son-in law is unreliable with money – how can we protect daughter’s inheritance?”

The answer in the U.S. is the same as it is in the U.K.

Instead of leaving a child an inheritance outright through a will, a trust can be used to protect the assets from a wayward in-law.
With a trust, you can make sure the money is only used for things you would want.

If your child gets divorced, the trust can also protect the inheritance in the divorce.

If you have an issue with your son-in-law or daughter-in-law and would like to make sure your child’s inheritance is not wasted, then contact an estate planning attorney to get a trust.

Reference: This Is Money (Sep. 8, 2017) “I have a terminal illness and our son-in law is unreliable with money – how can we protect daughter’s inheritance?”

When Couples Split Up

Many married couples separate from each other long before they get divorced. They need to redo their estate plans when that is the case.

If you and your spouse get divorced, estate law is good at recognizing that you probably no longer want your ex-spouse to inherit your property.

If you do not rewrite your will and your ex-spouse still inherits under it, then the law will assume that you meant to do so and constructively write the ex-spouse out.

However, the law stops there.

If your ex-spouse is the beneficiary of a trust, it is much more difficult to change the trust.

Even more difficult is what happens if you and your spouse have separated but not yet gotten divorced, as the Canadian newspaper The Globe and Mail discusses in “A warning for couples who have split but not divorced.”

The laws in Canada and the U.S. are mostly the same in this area.

The law will not assume you do not want a spouse from whom you have separated, to not inherit under your estate plan.

Why? Until a divorce is finalized, you and your spouse can always get back together and courts cannot divine what you intended.

The solution to this problem is to see an estate planning attorney, when you separate from your spouse.

You need to do this before a divorce is finalized, so the attorney can assist you in creating an estate plan that makes your wishes clear.

Reference: The Globe and Mail (Sep. 12, 2017) “A warning for couples who have split but not divorced.”

Writing Your Plans Down Is Important

If you want to have a say in who gets your possessions after you pass away, then you need to get an estate plan or at least write something down.

A commonly held belief is that it really is not that important to get an estate plan, if you do not have much property or do not have kids. People think that because they do not have much of importance, things will just go to whoever wants them.

If they have a spouse, he or she will just get everything.

If there are children, then they will get what they want.

Unfortunately, things are not always that simple, as the New Jersey Herald reports in “Put your plans in writing.”

If you do not have an estate plan, then your possessions will be distributed according to the laws of your state. The government will decide who gets what.

Sometimes that might be the same person you would choose, but other times it might not be.

There is no reason anyone should ever take the chance. It is much better to write your plans down.

Write down what you want.

In some places, you might be able to get away with just writing everything down yourself, but do not rely on that.

It is much better to go to an estate planning attorney and have formal plans drawn up.

This ensures that your wishes are followed, because the attorney knows how to draft and execute documents that will be considered legally valid in your state.

Do not take the chance that your belongings might go to people you do not want to have them. Get an estate plan.

Reference: New Jersey Herald (Sep. 12, 2017) “Put your plans in writing.”

Determining an IRA Beneficiary

One of the most important estate planning decisions that many people make, is who should inherit IRAs.

For many people, deciding who should be the beneficiary of their retirement accounts is something that is not thought about for too long. The decision is made quickly and the person chosen is usually a close relative.

When filling out the paperwork, most married people instinctively write down their spouses.

Parents who are not married will write down their children.

Younger people might just write down their parents or a sibling.

However, if an IRA is consistently paid into and wisely invested, it can grow to be of tremendous value. It is often one of the biggest assets that people have when they pass away.

That means IRA beneficiaries should be carefully considered and chosen wisely, as Morningstar discusses in “Who Should Inherit Your IRA?”
The bottom line is that the beneficiary of your IRA should be chosen based upon where the money will do the most good.

Since there are different tax implications for different types of beneficiaries, you should consult with an estate planning attorney.

Doing so will help ensure that your IRA and the rest of your estate can be distributed to heirs in a way that is fair for everybody and has the fewest negative tax implications for everyone.

Beneficiary designations should be done as part of your overall estate planning. Therefore, you should seek professional advice.

Reference: Morningstar (Sep. 10, 2017) “Who Should Inherit Your IRA?”

Spousal Election

A surviving spouse has the right to an inheritance, in almost all circumstances.

Most people do not want to cut their spouses out of their estate plan. However, there are some people who have built up a lifetime’s worth of grievances, have not gotten a divorce and who do try to disinherit their spouses.

This used to be a much bigger problem, when divorces were more difficult to obtain. However, the issue still persists today.

Fortunately, for surviving spouses, people are not allowed to merely disinherit their spouses.
It is not a simple matter though, as the Times Herald-Record discusses in “A spouse’s inheritance rights no simple matter.”

The details vary by state, but a surviving spouse has the right to make what is known as a “spousal election.” This allows a spouse to elect to receive whatever is or is not given to her in the estate plan or to receive a certain percentage of the total assets of the estate. Commonly, this election is for between one-third and one-half in most states.

The reason for the rule is that people felt there was a duty to care for one’s own spouse and that it would be wrong to leave a widow destitute.

There are ways around the law, if the spouses have entered a pre-nuptial agreement, but they are not ironclad.

If you need help navigating the rules of spousal elections in your state, then schedule an appointment with an estate planning attorney who can assist you and make sure your estate plan leaves enough for your spouse. You can also learn how to take the election, if you are a surviving spouse.

Reference: Times Herald-Record (Aug. 31, 2017) “A spouse’s inheritance rights no simple matter.”