Your Estate Plan Has Holes

Just 25 years ago, the estate and gift tax exemption was $675,000. More than 50,000 estates paid estate taxes.

Fast forward: estate planning used to be about planning for incapacity and estate taxes. But the high exemption of $15 million ($30 million for couples) has left only about 2,000 estates subject to the tax.

Planning has changed, but tax planning hasn’t disappeared; it’s just moved to income tax management for couples and survivors.

For married couples especially, the planning conversation is increasingly about coordination with retirement planning, protection against avoidable risks, and making sure assets go where you want them to go.

For most households, the estate planning risk is friction: it is probate, outdated beneficiary forms, poor titling of assets, missing incapacity documents, unnecessary capital gains taxes, or trust structures that no longer fit the family’s situation.

That includes old trust design. Years ago, bypass trusts and similar arrangements were often treated as a default move for married couples. In the right case, some of those structures still have value. But for most, they no longer solve the primary problem, and they can sometimes create new ones.

Outdated trusts interfere with flexibility or cause a family to lose valuable tax benefits, notably a step-up in basis opportunity.

That basis issue deserves much more attention than it gets. Step-up in tax basis remains one of the most powerful estate-planning opportunities available, yet it is often overlooked. Low-basis assets can carry hidden or unpleasant tax problems. A family business appreciated stock or commercial real estate, intellectual property, or assets carrying heavy depreciation recapture can all create large future tax exposure.

This is also where properly designed asset-protection trusts can be useful. In the right circumstances, they can do more than protect assets from future legal exposure. They can help direct assets where the family wants them to go, add control over how and when beneficiaries receive wealth, and, when carefully designed, improve tax results rather than undermine them.

Retirement accounts, insurance contracts, annuities, transfer-on-death accounts, and payable-on-death arrangements often pass according to beneficiary forms. That means a carefully drafted estate plan can be quietly defeated by one old form on file with a custodian. Reviewing beneficiary designations may be one of the highest-value estate-planning tasks most families can do, and yet it is frequently neglected.

Are your low-basis assets positioned and titled intelligently? Does your trust still make sense under today’s exemption rules? Are your incapacity documents updated? Will your assets go where you intend, with as little friction and tax drag as possible? Will personal property cause family friction (it often does)?

Consult your estate attorney and financial advisor. No one wants to do estate planning. But caring people do it, and that’s you.