Lower Estate Taxes, Tougher Estate Planning


If you’re like most people, you probably think of your estate plan in earnest every 17 years. The first time through might have been when your first child, or more likely second or third child, was on the way. The second is when the kids are on the way out of the house. And the third and later cycles are just because.

I’m kidding . . . a bit. But the nature and progression of the estate tax system over the course of my career has limited the need for people to review their plans for tax reasons. Exceptions would have been in 2010 and 2012 when there was some concern about the estate and gift tax exemption dropping to $1 Million — the psychology of that experience would have been fun to write about if I had started this site earlier.

So if the exemption is now nearly twice as high as it was, why would the 2018 increase be any different than the past 20 – 30 years? In some ways, it isn’t — but I think it is . . . a bit. For those who did not have taxable estates last year (individuals with estates of $5,490,000 or less and couples with $10,980,000 or less), the increase in exemption has very little impact. But for those that did, the benefits of reduced taxation is more likely to raise the angst that can accompany leaving that much more to the next generation.

Going back to 2010 and 2012, I noticed an interesting phenomenon among a good percentage of my clients who took steps to preserve their gift tax exemptions. Those who made large gifts, but still had taxable estates (which was most of those who did make such gifts), had much lower motivation to do more planning to avoid additional taxes. The analysis moved away from avoiding taxes to “I think that’s enough” for the kids, etc. And that sentiment seemed, to me anyway, completely unrelated to whether a child’s financial maturity was high or low.

It’s still early in 2018, and it’s only about a month since we knew there would be an $11 Million+ exemption — but it seems to me already that a natural barrier/hesitation to transfer wealth by gift is presenting itself. After all, a couple with two children can now, without any estate or gift tax consequences, leave each of their children more money that Bill and Melinda Gates are choosing to leave their children. Interesting.

What do you think? I anticipate that this will be a continuing discussion for as long as we have this level of exemption, but do you agree?


About Author

Mark initiated this blog due to his passion in assisting and equipping families to manage their wealth and their families well.

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