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How do the new tax laws affect my estate?

If you have not reviewed your California estate plan in the past couple of years, you may be in for a pleasant surprise when you do. The Tax Cuts and Jobs Act that Congress passed and President Trump signed into law late last year may have dramatically increased the value of your estate, giving your heirs and beneficiaries more than you thought.

As Market Watch explains, under the old law your estate had to pay a federal estate tax if it is worth more than $5.6 million. Under the new law, your estate will not have to pay this “death tax” unless it is worth more than $11.2 million. In other words, your federal estate tax exemption doubled. Since California has no estate tax of its own, what this means is that your estate will pass tax-free to your heirs when you die unless you are among the uber-rich whose estates worth in excess of $11.2 million will still have to pay the 40 percent death tax.

Exemption for married couples

If you are married, this increased exemption applies to your spouse’s estate as well. So between the two of you, you can now pass $22.4 million to your heirs tax-free. There is, however, a catch of sorts. Congress passed a tax revision in 2012 introducing portability, a method by which a surviving spouse avoids estate tax on the amounts (s)he receives from the deceased spouse. The Tax Cuts and Jobs Act preserves portability, but only if the surviving spouse’s estate documents contain the proper language to invoke this portability aspect.

Consequently, this is a great time to review your entire estate plan with your attorney so as to make sure it still fits your needs and the documents contain the proper wording. This is general information only and is not intended to provide legal advice.

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