Each year, at this time, we remind our clients of the importance of keeping their estate plan up to date. Estate planning goals change over time for many reasons. Personal reasons can include the birth, marriage, death or disability of a family member. Financial reasons can include significant changes in net worth or changes in the nature of your assets such as the sale or purchase of real estate or a business. It is important that your estate planning documents reflect your current goals. In addition, federal and state transfer tax laws offer opportunities for significant tax savings through proper planning. Clients should consider the benefits of insightful tax planning both during life through lifetime gift planning and at death through testamentary estate planning.
The start of a new year is the perfect time to review and update your estate plan to make sure that it continues to meet your personal goals and that you are taking advantage of the various tax-savings opportunities offered by the transfer tax laws. Below is a brief reminder of significant laws relating to estate planning, including significant changes for 2014.
The federal exemption amount for gift and estate tax purposes for 2014 is $5,340,000 (up from $5,250,000 in 2013). In addition, the introduction of portability allows a decedent to transfer any unused gift and estate tax exemption to his or her spouse. This ability to “combine” gift and estate tax exemptions results in a total exemption for married couples of $10,680,000 in 2014. The exemption for generation skipping transfer tax has also been increased to $5,340,000, from $5,250,000 in 2013.
Although the federal lifetime exemption amount remains high, many states impose much lower thresholds. In 2014, the exemption amount for Rhode Island has increased to $921,655 (up from $910,725 in 2013). The exemption amount for Massachusetts remains at $1,000,000. Portability does not apply to state estate taxes. Therefore, individuals with assets exceeding $921,655 in Rhode Island or $1,000,000 in Massachusetts must consider transfer taxes in their estate planning.
The gift tax annual exclusion amount for 2014 will remain at $14,000 per donee. This means that couples may gift up to $28,000 per person without incurring a gift tax or using their lifetime exemption.
For federal tax purposes, same-sex spouses who are legally married under state law are now afforded the same benefits afforded to opposite-sex spouses. This includes, among other things, the ability to transfer an unlimited amount of assets to a same-sex spouse free from estate and gift tax. All six New England states permit same-sex marriage. Same-sex spouses should revisit their estate plans to consider adding transfer tax planning that was previously unavailable to them.
In both Rhode Island and Massachusetts, there have been developments in the law relating to trust decanting. Decanting is a process whereby a trustee can transfer some or all of a trust’s assets to another trust. This technique can effectively modify the terms of an irrevocable trust to reflect current goals and needs. Clients with irrevocable trusts in place that no longer serve their current estate planning goals should consider whether decanting may be available.
You probably have put a significant amount of time, energy and emotion into your estate plan. Therefore, it is important to make sure your plan continues to reflect your goals. Updates to an estate plan can be as minor as changing your designations for trustees, executors and agents in your powers of attorney and health care proxies.
If you do not have an estate plan, why not make 2014 the year to accomplish your personal planning goals?