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Now that only mega-estates with more than $11 million in assets will be subject to federal estate taxes, do the rest of us still need estate plans?


The answer is an unequivocal “Yes”, says Marie DelRossi, Vice President, Trust & Estates Counsel, at Cambridge Trust. “Though the federal exemption amount has gone up, there are a myriad of reasons why everyone needs an estate plan.” In most cases, it also makes sense to explore the use of trusts as a part of that plan, she says.

In keeping with PUBLIC LAW 115–97 passed on December 22, 2017—better known as the Tax Cuts and Jobs Act of 2018 (TCJA 2018) -- the official estate and gift tax exemption for 2019 is $11.4 million per individual, $22.8 million per married couple. That is more than twice the exemption available before the new law took effect.
This means individuals can now leave up to $11.4 million to their heirs without paying any federal estate or gift taxes on the transfer. For couples, the amount is twice that. “As a result,” says DelRossi, “many people with estates of less than $11.4 million are under the impression that maintaining an estate plan is no longer necessary.”

Benefits of creating a comprehensive estate plan

When the federal estate tax exemption amount was lower (at $5.49 million), it was much easier to imagine that you might exceed it, she says. “For many couples, simply adding up all their assets, including their home values and retirement account balances, put them pretty close to the limit. It was much clearer then that an estate plan was necessary to lower the amount of federal taxes potentially due.”
Although the desire to reduce federal estate taxes may no longer drive the need for a comprehensive estate plan, as it did in the past, there are still compelling reasons to create one.  

According to DelRossi, an effective estate plan will at least include a will, a trust, a durable Power of Attorney (POA), and health care directives. Together, these documents can help your spouse and heirs minimize state and federal estate taxes, streamline probate, maintain privacy, protect assets from creditors, and honor your wishes if you are incapacitated. Here’s a quick review of each of those benefits.

1. Minimize state estate taxes

If you live in any of the seventeen states or the District of Columbia that still have estate taxes with low exemption amounts, you may end up paying estate taxes on your assets after all. In Massachusetts, for example, an estate tax return must be filed and a tax may be due if the gross estate, plus adjusted taxable gifts, exceeds $1 million.[1]

Having an estate plan that uses properly drafted and funded trusts to hold your assets can reduce this state tax liability, says DelRossi.

2. Reduce the hassle, delay, and cost of probate

Probate is the legal process required by each state after someone dies to validate his or her will and appoint a representative/executor who must:

  • inventory the decedents property,
  • pay any outstanding bills, taxes, or debts; and
  • distribute remaining property as specified in the will. 

Having an estate plan that specifies how you want to transfer your assets means that the state will not need to make those decisions during the probate process. “If you don’t have a will and property does not pass to a beneficiary by deed, contract (pursuant to a retirement plan or an insurance or annuity policy, for example), or through a previously funded trust, such property will be distributed to family members according to the laws of intestacy and not as you may have intended,” explains DelRossi.

In addition, she says, creating a properly funded trust as part of your estate plan can help you avoid the delays and costs of probate because assets in a trust transfer directly to the named beneficiaries outside of the probate court process.

3. Maintain privacy

Because probate is a public process, any assets that pass outside of probate using trusts also escape public scrutiny. “Establishing trusts as part of your estate plan makes it more likely that certain transfers remain private and will not be subject to probate court rules that require certain family members be notified,” explains DelRossi.


4. Protect assets

Having a valid will as part of your estate plan may also prove helpful if there are problems with any “contractual” transfers of assets after death. “If there’s a problem with a beneficiary designation, or a ‘payable on death’ account, or if a deed was not properly drafted, having a will that reinforces how these assets should be transferred is a good backstop measure,” says DelRossi. 

Because the probate court requires public notice at the opening of each proceeding, the assets in a probate estate could be claimed by creditors. “If the deceased person was older or disabled and needed to tap into Medicaid to help pay for nursing home expenses, one creditors is likely to be Medicaid, as the state tries to recoup its costs,” she explains.

On the other hand, assets that pass directly to beneficiaries through a trust may have more protection from creditor claims than if they were in the probated estate.

5. Help your family (or representative) make decisions when you can’t

“In addition to assuring that your property and assets are successfully and efficiently transferred at your death, a successful estate plan also helps your family make decisions for you during your lifetime, if you are unable to do so,” says DelRossi.

Key documents that must be included to facilitate this decision-making include:

  • A Durable Power of Attorney that grants permission for one or more persons to handle your financial affairs if you become incapacitated or unavailable.
  • A Healthcare Power of Attorney, also known as a Health Care Proxy Designation, appoints someone to have access to your medical information and manage decisions about your healthcare.
  • Advance care directives will specify your wishes for end-of-life care.
  • Guardianship designations, included within your Will, name the people you want to assume responsibility for the care of any minor children or disabled adults for whom you may be responsible and also may indicate the person you would want to act as your guardian if needed.

Read more about Powers of Attorney and Health Care Directives.

6. Leave specific instructions

A complete estate plan should also include information to help your survivors know how to manage your affairs if you can no longer do so, including:

  • How to access your digital assets, passwords, and online accounts
  • What you want done with a particular asset such as a vintage auto or heirloom jewelry
  • Your preferences for living arrangements (home health aide, assisted living, skilled nursing facility)
  • Other special requests you may have, including pet care (and funding for such care)
  • Your status as an organ donor
  • Your desires or arrangements for your funeral, memorial, and burial

Perhaps not as critical, but increasingly included as part of the estate planning process today is the preparation of a letter through which you share your values, wisdom, or lessons learned with the next generation. You might also consider creating a family history in photos or on video to leave as a legacy.
Finally, make sure your spouse or partner and personal representative know where to find your estate planning documents. Keep the original legal documents in a file, binder, or estate notebook, because a safe deposit box will be inaccessible until the probate court appoints your legal representative.

This article is for informational purposes only and should not be construed as investment or legal advice. 


[1] https://www.mass.gov/guides/a-guide-to-estate-taxes