Older estate plans may not reflect current tax laws
Many people create an estate plan and expect that plan to last for many years, unless something significant changes in their life, like a change in relationship status or the birth of a child. However, life changes aren’t the only thing to consider when it comes to updating older estate plans. Changes in federal tax law and evolving estate planning strategies can also signal the need for an update.
One of the most significant changes in recent decades has been the federal estate tax exemption, which is the total value of assets that can be transferred to heirs without estate tax. In 2006, the exemption was $2 million per individual. In 2016, it increased to $5.54 million per person. Today, it is $15 million per person.
That means that estate plans created 10 to 20 years ago were designed for a very different tax situation than what exists today.
How older trusts were structured
In the past, estate planning often focused heavily on minimizing estate taxes. A common approach for married couples was to include a formula-based trust structure that divided assets at the death of the first spouse.
These plans frequently created two trusts — one for the surviving spouse and a separate irrevocable trust funded with assets up to the estate tax exemption amount.
This structure was designed to ensure that both spouses’ estate tax exemptions were fully used. At the time, this was an important strategy for many families.
Why those plans can create challenges today
With today’s higher exemption amounts, many families are no longer subject to federal estate tax. Older plans that still include formula-based provisions may no longer align with a family’s current goals and can lead to unnecessary outcomes.
For example:
- Assets may be directed into an irrevocable trust when there is no tax reason
- to do so.
- The surviving spouse may have limited control over certain assets.
- Families may face additional administrative complexity and cost.
- The plan may not reflect how assets are titled or used today.
In some cases, these structures still serve a purpose. But in others, they can create extra work or unintended consequences without providing meaningful benefit.
The importance of flexibility in today’s plans
While the current estate tax exemption is high, there’s no guarantee it will remain at its current level. Future changes in tax law could lower the exemption again.
Because of that uncertainty, many modern estate plans are designed with greater flexibility.
Instead of relying on fixed formulas, plans may allow decisions to be made at the time of death based on the laws and circumstances in place at that time. This approach can help families adapt without being locked into a structure that no longer fits their situation.
A simple question to consider
If your estate plan was created more than 10 years ago, it’s worth asking if the plan makes sense under current tax laws and if it still reflects how you want your assets handled. Even if no major changes are needed, a review can help ensure your plan continues to work as intended.
At Wright Law Firm, we help families prepare thoughtful estate plans that protect their wishes and make future decisions easier. When circumstances require it, we also guide families through the adult guardianship process.
If you’re noticing that a loved one may need more support, starting the conversation now can help ensure the right plans are in place for the future.
