For New Jersey residents who are thinking about how to structure or update an estate plan, it is important to understand certain factors. People might craft an estate plan based on the policies of a current presidential administration and then change it if there is a new president. After the 2020 election, people are determining how to address their estate planning needs. As with any aspect of estate planning, it may be beneficial to have legal advice from the beginning.
Estate Tax Exclusions
As things stand, the most recently implemented tax laws dictate that people are shielded from the estate tax with the right to exclude $11.58 million if they are single and $23.16 million if they are married. With a new administration, the exclusion level could be changed, likely to a lower amount. If there are assets beyond that amount, it can be taxed by as much as 40%. This exemption is scheduled to expire in 2025 regardless of who is in the White House, so that is something to think about.
Spousal Limited Access Trust (SLAT)
A Spousal Limited Access Trust (SLAT) can be used to protect assets. Assets are transferred into an irrevocable trust with the person who transfers the assets (the grantor) still having access to it. The trust will say how distributions are made. The positive attribute of SLAT is that contributions are protected by the $11.58 million lifetime gift tax. If assets increase in value, there will be no estate tax. Those who may divorce might not want to use SLAT.
529 Savings Plans
The 529 savings plan is generally perceived as an education savings vehicle. It can also be part of estate planning as it allows the allocation of a lump sum that could reach five times the gift tax. In 2020, that is $75,000 for a single person and double that for people who are married. That tax is not activated if it extends over five years. Money in the account can grow in value without needing to pay taxes on it.
Legal advice can be imperative with any aspect of estate planning
These are just some of the possible avenues to save on taxes with the incoming presidential administration. Generally, they are used by people with significant assets. People who are in a different circumstance may have other goals and ideas with their estate plan. That can include a will, a trust, a special needs trust, a durable power of attorney, a health care directive, planning for long-term care and more. Consulting with a firm that handles all areas of estate planning can provide guidance in how to proceed with a comprehensive and effective strategy.
