New Jersey residents should review their estate plans periodically to ensure that modifications are made to reflect changes in tax laws. Failure to do so could leave one’s estate vulnerable to loss based on inadequate tax planning. In some cases, strategies that once provided important protections for the value of a marital estate may be less important because of increased exemption allowances. Leaving an outdated strategy in place could end up costing an estate rather than protecting its value.
The bypass trust is an example of a strategy that is no longer necessary for many couples. In the 1990s, an estate of more than $675,000 could be affected by huge federal estate taxes. During that period of time, amounts in excess of this exemption were subject to estate taxes of 50 percent. The bypass trust was developed to provide an option for doubling the amount exempted from estate taxes. However, the per-spouse exemptions began to rise in 2001, and today’s married couple has the benefit of being able to exempt $5.45 million per spouse. When a bypass trust is left in place unnecessarily, the maximum amount must be placed in the trust when the first spouse passes away.
An outdated estate planning strategy can be addressed in the context of an annual appointment to review a person’s will, trusts, and accounts with beneficiary designations. If a divorce occurs, it is important to conduct an earlier review to ensure that an untimely death won’t leave important assets to an individual who is no longer part of the family. Similarly, a prompt review is advisable after the birth of a new family member to ensure that the individual is included.
State tax laws can also affect one’s estate. A married couple moving from an area that has no state estate tax to a state that does impose estate taxes might want to review their plans and documents with lawyers in the new jurisdiction.