Your high-net-worth clients need to look again at their estate plans.

Wills and trusts set up before passage of the Tax Cuts and Jobs Act may not take into account that reform more than doubled the amount that can be exempted from estate taxes. For 2020, the estate tax exemption is $11.58 million for an individual, $23.16 million for a married couple.

Many estate plans were created prior to tax reform, with different exemption numbers.

“Clients need to review wills and make sure that they’re optimizing the exemption,” said Gerry Joyce, New York-based national head of trusts and estates, managing director and deputy general trust counsel of Fiduciary Trust Company International. Trusts and wills use “formula” clauses tied to the exemption amount – clauses that can quickly become outdated.

A well-drafted will refers to the “maximum exemption” available at the time of death. “Many wills and trusts are drafted by attorneys who are generalists … and they may not use such an approach,” said Randy P. Siller, a CPA and partner at Siller & Cohen in Rye Brook, N.Y. “The maximum exemption available won’t be used,” opening the door to added, unnecessary estate taxes.”

Life events often trigger an estate plan review. Tax law changes should too, said Jose Reynoso, J.D. and senior managing director and director of financial planning at Clarfeld Citizens Private Wealth in Tarrytown, N.Y. Reynoso also advised “paying close attention to automatic funding clauses based on the exemption amount.”

The hefty generation-skipping transfer tax is another surprise to wealthy clients, he added. The GSTT applies to transfers to descendants who are more than a generation younger than the donor, or to unrelated persons 37.5 or more years younger than the donor.

Team Approach

Wealthy clients need a team. “There should always be a family advisor that has experience working with high-net-worth families,” said Richard H. Bader, CPA and senior manager at the New York firm Janover LLC. “The rest of the team should include a top trust and estate attorney [and] an accountant.”

“Advisors can be helpful resources [in gathering estate-related documents] by maintaining copies of records in a virtual safe,” said James G. McGrory, CPA and shareholder at Drucker & Scaccetti in Philadelphia.

According to Michael Roberts, president of Arden Trust Company in Wilmington, Del., strategies for locking in exemptions and avoiding future transfer taxes include lifetime gifts and dynasty trusts. The latter allow substantial wealth to compound free of federal gift, estate and GST taxes. “It’s becoming more common for states to allow these trusts to last for hundreds of years or even in perpetuity,” Roberts said.

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