When Have You Had to Adjust an Estate Plan Due to Changes in Tax Laws?

When Have You Had to Adjust an Estate Plan Due to Changes in Tax Laws?

We asked CEOs and attorneys to share their experiences of adjusting estate plans due to tax law changes. From navigating tax law changes and trusts to adapting to the TCJA of 2017, these four insights highlight the importance of staying informed about legal and financial shifts.

• Tax Law Changes And Trusts
• Estate Tax Exemption Increase
• Adjusting to the TCJA of 2017
• Estate Tax Exemption Increase

Tax Law Changes And Trusts

Years ago, as part of my law practice in Canada, a client came with an interesting question. They had inherited a family property that had seen incredible capital appreciation over the 70 years that the former owner had it. The property was part of a trust, and in the '90s, the tax and estate laws had changed in a way that meant they were going to have to pay a mega tax bill that year. We were able to adjust the trust documents to comply with all the necessary tax provisions and deferred the tax until the recipient's end of life—a big win financially.

Estate Tax Exemption Increase

As an estate-planning attorney for over 40 years, I often have to revise clients' estate plans to account for changes in tax laws. A recent example was the increased federal estate tax exemption, which rose from $5 million to over $11 million per person. Many of my clients had wills and trusts that were set up assuming the lower exemption amount, so we had to modify their plans to take advantage of the increased exemption.

For some clients, this meant revising their wills to include larger bequests to family members and charities before the estate tax kicked in. For others with larger estates, we set up irrevocable life insurance trusts to remove the value of their life insurance policies from their taxable estates. By making these changes, many clients were able to avoid significant estate taxes and ensure more of their wealth passed to their heirs.

When tax laws change, estate plans often need revisions to continue meeting clients’ goals. Failing to make necessary updates can result in assets being distributed in unintended ways or larger portions of estates being lost to taxes. Estate planning is an ongoing process that requires monitoring changes in the law and regularly reviewing and revising plans to optimize clients’ financial and personal objectives. With frequent reviews and strategic modifications, estate plans can continue providing maximum benefit to clients and their beneficiaries even as laws and circumstances evolve.

Adjusting to the TCJA of 2017

At Right Lawyers, we once worked on an estate plan for a client that required significant adjustments due to changes in the federal estate tax exemption. When the Tax Cuts and Jobs Act of 2017 was passed, it temporarily doubled the federal estate tax exemption, which meant fewer estates were subject to federal estate taxes. The client had an estate plan that was initially designed to minimize estate-tax liability under the previous, lower exemption thresholds.

Given the increased exemption, we saw an opportunity to simplify the estate plan while still protecting the client's assets. Before the law changed, their plan included various trusts and strategies designed to shelter assets from estate taxes. However, with the new, higher exemption, we re-evaluated whether those complex structures were still necessary.

We adjusted the estate plan by reducing the number of trusts and simplifying the asset-distribution strategy. This not only saved the client time and future administrative costs but also made it easier for their heirs to understand and manage the estate. We also advised the client to keep an eye on future tax-law changes since the increased exemption was set to sunset in 2026 unless extended by Congress.

By adapting the estate plan to the new tax laws, we were able to protect the client's assets while creating a more straightforward, flexible approach that could easily be adjusted again in the future. This experience highlighted how critical it is to stay informed about tax-law changes and adjust estate plans accordingly to ensure clients are taking full advantage of current laws and minimizing unnecessary complexity.

Estate Tax Exemption Increase

One experience involved adjusting an estate plan when the federal estate tax exemption increased significantly. A client had an older estate plan that was designed to minimize estate taxes under the lower-exemption limits, utilizing tools like credit-shelter trusts. With the new, higher exemption, those tools were no longer necessary and, in fact, made the plan more complex and less beneficial.

We simplified the plan by removing the trust provisions and updating asset-transfer strategies to take advantage of the larger exemption, focusing more on income-tax basis step-ups for heirs rather than estate-tax minimization. This change better suited the client's goals under the current tax laws.