By Michael A. Dolan

In December, Congress passed the Tax Cuts and Jobs Act, which made significant tax law changes. The act increased the exemption from paying estate tax to $11.2 million per individual. Amounts over the exemption will continue to be taxed at 40%.

The increase in the exemption is significant, and many Americans, even with large farm and ranch holdings, do not have an estate that will exceed the current exemption. This especially applies if they are married, as the law allows them to avoid death tax on $22.4 million.

So, what do these large exemption amounts mean when it comes to estate planning?

First, the higher exemption amount automatically expires in 2026, returning to its 2013 amount — half the current exemption, adjusted for inflation.

Second, we need to remember that the exemption amount can be changed at any time by Congress. The likelihood that a future Congress will reduce this amount is significant. Remember, two major candidates in the last election were running on a platform proposing a $1 million and $2.5 million exemption amount.

Assuming this tax-favorable environment will continue indefinitely is simply unwise. Can we realistically assume that taxes will go down in the future? You should plan now while you are not subject to the tax, in anticipation of a higher tax environment in the future.

Third, the significant increase in exemption amounts that began in 2013 changed the landscape regarding how people plan their estates. Estate plans prepared prior to 2013 often focused on avoiding death taxation. To protect families from death taxes, the plans sacrificed the income tax advantages that individuals gain upon death.

Review time
If you have not updated your estate plan to adjust for the changing tax environment, your old plan may unnecessarily and substantially increase the income tax liability your family will face after your death. New planning techniques have been developed by estate planning experts that allow you to minimize death taxation, while maximizing the available income tax advantages and protections for your family.

Many families have failed to recognize how these ongoing changes in the legal environment are affecting their estate plans. You should be proactive regarding getting your plan updated. Most attorneys do not inform their clients of needed changes after the sale of the original documents, and some are not up to date on the available options if they do not specialize in this area. You are responsible for recognizing when changes are needed. If you have not updated your estate plan recently, you should seriously consider getting it done.

In a constantly changing legal environment, maintaining your estate plan is a critical element to its success. This is the only way to protect your plan’s effectiveness from being eroded by legal and personal changes. The documents don’t magically change in your safe deposit box. To produce the best possible result, they need to be updated regularly.

Dolan, an attorney, helps farm and ranch families achieve comprehensive estate, succession and legacy planning objectives. Dolan is the principal of Dolan & Associates, P.C. in Brighton, Colo. Learn more at his website, estateplansthatwork.com.