This Time Is Different: You Really Do Need to Update Your Will and Durable Power of Attorney

by Davis Wright Tremaine LLP

With the advent of higher exemptions with respect to the Federal Gift, Estate, and Generation-Skipping Transfer Tax passed last December (referred to as the 2017 Tax Act), it really is necessary to review your estate tax planning and it would also be a good time to review your durable power of attorney in light of the recent adoption of the Washington Uniform Power of Attorney Act, effective January 1, 2017.

As reviewed in the recent Davis Wright Tremaine T & E Advisory, the federal estate tax, federal gift tax, and federal generation-skipping transfer tax exemptions were increased from $5 million per individual to $10 million per individual, which, given adjustments for inflation since their initial adoption at $5 million in 2011, are all thus approximately $11.2 million per person.

With these increased exemption amounts, it may be that your existing estate planning completed in the 90’s or even prior to 2011 may be overly complicated in attempting to navigate the federal exemption levels, which now would have no application to an individual estate less than $11.2 million. That is, there may be planning for an “exemption trust” or a “credit trust” in your will (or revocable living trust) that is unnecessary and will create trusts or other complications in the disposition of your estate where it is now less than $11.2 million (or $22.4 million for a married couple).

In particular, if your planning left an amount equivalent to the federal exemption amount to your children and then the balance of your estate to your spouse, the current federal exemption amount of $11.2 million would now be going to your children, which possibly would leave nothing to then pass to your spouse under those terms.

But, Washington State (and Oregon also) still have an estate tax. In Washington, the individual exemption is approximately $2.2 million. So, planning with a “credit trust” or an “exemption” trust or otherwise taking account the Washington exemption amount and preserving it in the estate of the first spouse to die is still relevant if your community property estate with your spouse is in excess of $2.2 million. And, this planning concern is certainly the case if the community estate is in excess of $4.4 million. If your will provisions that integrate the federal exemption planning with the Washington State (or Oregon) exemption have not been updated since 2011, they certainly should be. And, with the increased federal exemption to $11.2 million, there is even a greater reason to be sure that your federal estate tax planning is integrated with your Washington (or Oregon) estate tax planning.

With respect to Powers of Attorney, which everyone should have in order that you have named someone to manage your affairs in the event of your legal incapacity or disability (see Who Runs Your Business and Finances if You Can’t?), the technical requirements for a valid power of attorney in Washington are now governed by the Washington Uniform power of attorney Act, which was effective January 1, 2017. While most powers of attorney will meet the specific requirements now in effect under the new January 1, 2017 law, you should have your power of attorney reviewed by your legal advisor to be sure that it would still comply with the requirements under the new law.

In addition, if your power of attorney does not contain authority for your attorney-in-fact to manage your digital and other electronic assets, such as social media accounts, online banking and investment accounts, and other digital or Internet-related assets, you will want to update your power of attorney to provide the authority to your attorney-in-fact to have access to your various accounts and other digital assets.

In addition, if your will is more than a few years old, you would want your executor under your will to also have access to, and then manage, your digital assets or other social media accounts that contain bank accounts or other investment assets or even family pictures or other personal items that should pass to your beneficiaries.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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