The Dow has now risen approximately 60% since the day President Trump was elected in November of 2016. How is this rise relevant for estate planning purposes, and in particular estate planning for married couples?

Assume a married couple came to you at any time before the 2016 election but after 2010, when the federal estate tax exemption was raised to $5 million, with inflation adjustments after 2011. The Dow was not significantly higher on the date of the election than it was in 1999, and there was certainly very little thought among most clients and their estate planning attorneys that the Dow would rise by 60% over such a short time frame since.

As a result of the new “permanent” $5 million federal estate tax exemption, with adjustments for inflation, in many instances estate planning attorneys after 2010 were shifting from the previous two-trust or two-share estate plan, which they applied for married couples when there was serious concern the federal estate tax exemption could drop back to $1 million (or potentially even lower), to “joint” plans, which were much simpler for couples to administer, normally produced better income tax basis results for their heirs, and, if used properly, potentially also produced asset protection benefits for couples residing in so-called “tenancy by entirety” states.

So, for example, a married couple in their 60s at or nearing retirement, with a total net worth (including life insurance and retirement plan and IRA benefits) of up to $4 million, might have been ripe for a “joint” estate plan during these years, given the fact that the current federal estate tax exemption was $5 million, and rising with inflation. Assume that such a couple executed a “joint” estate plan the first week of November 2016. Now assume the same couple’s net worth has since risen by 50% (or less than the Dow’s increase over the same time period), to $6 million. How is this increase in the couple’s net worth relevant to their estate planning?

Some may argue that, because the federal estate tax exemption is now at $11.58 million, a joint estate plan should still be appropriate for this couple. But is this really true? Although the federal estate tax exemption is currently $11.58 million, this amount is scheduled to drop to approximately $6 million in 2026, and of course could potentially drop earlier (and by more) if President Trump is not in the White House a year from now. 

What if one spouse in the above example dies today, when the federal estate tax exemption is at the $11.58 million level, but the surviving spouse lives until the year 2026, when the federal estate tax exemption is $6 million (or potentially lower)? If the surviving spouse’s net worth grows between today and the year 2026, each excess dollar of growth over the $6 million (or potentially lower) federal estate tax exemption level will be taxed at a 40% (or potentially higher) federal estate tax rate. And these numbers do not even factor in the possibility of the surviving spouse dying in a state that imposes its own estate or inheritance tax, at potentially lower exemption amounts.

Others may argue that the so-called “portability election” available under federal law solves all of these concerns, because the surviving spouse would be able to add the predeceased spouse’s “unused” federal estate tax exemption onto his or her own, say, $6 million federal estate tax exemption, thereby eliminating the concerns raised above. Even ignoring the fact that the federal portability election is unlikely to be available for state estate or inheritances tax purposes, and is definitely not available for federal generation-skipping transfer tax purposes (a topic beyond the scope of this short article), is this generalization about the federal portability election true?

In fact, the portability amount will not be available to the surviving spouse if the surviving spouse remarries and his or her new spouse dies first. Although the surviving spouse may be entitled to a portability election applicable to this new spouse, there is no guarantee a portability amount will even be available at the new spouse’s death, e.g., because the new spouse’s estate may be large and/or the federal estate tax exemption at the time of his or her death may be smaller. As a reminder, there may also be state estate and inheritance tax and/or federal generation-skipping transfer tax issues to contend with at that time, which issues may have been lessoned or eliminated had a “two-trust” or “two-share” estate plan been employed at the time of the first spouse to die’s death.

In short, because of the 60% run up in the Dow since the date President Trump was elected in November of 2016, some married couples (at least those who are unsure whether either spouse might remarry after the death of the first spouse) who executed or updated their estate plans over the last 10 years, and who are now utilizing a so-called “joint trust” or “joint will” plan, which does not separate the couple’s assets into separate trusts or separate shares prior to the death of the first spouse, may wish to have their estate plans reviewed today, in order to minimize the chance of any surprising federal or state estate, inheritance or generation-skipping transfer tax consequences upon the passing of the surviving spouse.

James G. Blase, CPA, JD, LLM, is principal of Blase & Associates LLC, a St. Louis-area law firm practicing primarily in estate planning, tax, elder care, asset protection and probate and trust administration. He is also an adjunct professor at the St. Louis University School of Law and the Villanova University Charles Widger School of Law.

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