Your estate plan is your last chance to affect your loved ones or causes close to your heart in a positive financial way. And most estate plans are based on personal relationships, family dynamics, and the financial condition of heirs. But when should tax law affect your plans? To help you make the right decisions about your estate, here are five times to consider.
1. When Limits and Thresholds Change
Every year, adjustments are made by the IRS and state agencies which set limits for tax benefits. Many of these are minimal, cost of living adjustments. But sometimes a tax threshold changes in a large way. For instance, the exclusion amount for estate tax was doubled in 2018 — but for a limited period. This has huge effects on larger estates.
2. When Heirs' Tax Liabilities Change
Your own taxes aren't the only consideration. What taxes will your heirs pay? While most inherited assets are transferred without tax liability for the heir, they often still have a future tax liability. If you leave your IRA to your child, for example, they may only have a set number of years to withdraw it and pay taxes. So you may not want to leave a large IRA unless these tax obligations change.
3. When You Get Close to Limits
Don't wait until your estate's value actually crosses a particular threshold to be affected by new tax laws. Once it draws close to limits or new benefits, start planning for the future. The value of some assets — like real estate — can change dramatically in a short period. You do well to be prepared so you have time to make decisions about things affected by those changes.
4. When Tax Laws Revert
Did you know that tax laws aren't always permanently altered? In some cases, changes in certain credits or limits are only applicable for a period of time. One great example is the increase in the excluded amount for estate taxes mentioned above. In 2026, the higher threshold will revert back to its pre-2018 levels. So you may need to make plans for the interim and for when it reverts.
5. When Taxes Cause Inequality
Many people strive for fairness and equality among their heirs through estate planning. However, tax obligations for various assets can throw off that equality. Leaving one child the family home and another a tax-free bank account will create vastly different tax reductions later on. If these become too unequal, it's time to reevaluate distributions.
Where to Start
No matter how long it's been since you reevaluated your estate plan, now is a good time to do so. Meet with your accountant today to learn how they can help you decide whether or not tax law should spur changes in how you care for your family after your passing.