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It’s time to review clients’ estate plans

There have been significant changes in Minnesota and federal law, as well as our society, which have an impact upon estate planning.

Federal estate taxes have been significantly decreased, effective as of Jan. 1, 2018.  If a client is single and their death is in 2018, there is no estate tax imposed unless the client owns more than approximately $11.2 million. For married couples, the estate tax exemption is now over $22.4 million per couple. This exempt amount will continue to increase until Jan. 1, 2026, when the law automatically sunsets and the exemption returns to approximately $5 million per person.  

Minnesota also reduced its estate tax, effective as of Jan. 1, 2017.  A Minnesota resident pays no estate tax at death in 2018 unless they own more than $2.4 million. This exemption automatically increases in each of the next 2 years until it reaches $3 million in 2020.

What does this mean for estate planning? A significant number of clients can now plan their estate without estate tax concerns.  For those clients who signed their documents several years ago, estate planning lawyers should be recommending a review to them, to see if they wish to possibly remove the estate tax planning provisions.

However, for married clients, there are many non-tax benefits to retaining the “B” Trust or Family Trust at the death of the first spouse created in current estate planning documents, including possible creditor protection for the surviving spouse and children, guarantees that the next line of beneficiaries after the death of the surviving spouse will inherit, adding restrictions on the use of assets after death, and allowing for co-trustees to assist with the future management of assets.

An increasing number of clients are expressing concerns about their children’s financial maturity to inherit assets, the stability of their marriages, the costs of education for grandchildren, and expensive medical care for their family. This is resulting in more discussions about postponing distributions for children, lifetime trusts for family members, and setting aside trust funds dedicated primarily to education and medical expenses.

For gifting, each person in 2018 may now make a gift of $15,000 per recipient (the annual exclusion), without having to file a gift tax return. The Federal lifetime gift tax exemption has also kept pace with the estate tax exemption, so that gift tax is not imposed unless the cumulative lifetime gifts now exceed $11.2 million.   Even though clients have more freedom to gift, there has been an overall decrease in gifts for many people, due to their concern of outliving their assets.

Many of our clients are loaning or advancing money to their family members who are in financial need, yet not properly documenting these loans or advances. At death, this can cause strife between siblings, if one has received a disproportionate gift. It also can result in difficulty for the administrator of the estate, as to whether these monies given were advancements, loans or gifts.

Revocable Trusts continue to be popular as the easiest way to avoid probate for most clients.  There are also many clients who want to implement a plan to keep a lake home in the family, along with specific provisions as to who can own and use it, and how it will be managed in the future.

There is also significant change in who and what is a family:  delayed age of marriage, people who live together and have children without marriage, second or third marriages, and multigenerational households.  This means that Premarital and Cohabitation Agreements, along with Trusts with specific provisions for extended family and non-family, are popular to legally protect assets and future inheritances.

Family Litigation and Conflict over inheritances and family are increasing.  It is challenging for lawyers who represent clients in these situations, needing to bring compassion, as well as legal backbone, to a resolution of these conflicts.

Focus cannot be lost either on planning for disability, with the use of Powers of Attorney and Health Care Directives.  These documents are not only legally critical, but they should be combined with an honest discussion of whether the person being named is ready to take on these responsibilities.

These legal, tax and societal changes mean that estate planning lawyers need to continue to update their recommendations, and that our clients need to frequently review their estate plans.

Karen Ciegler Hansen is a shareholder at Winthrop & Weinstine P.A.

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