Recent changes to the federal estate tax system have turned traditional estate planning on its head. Now under the new Tax Cuts and Jobs Act, most traditional estate plans for a married couple are likely to increase taxes at death, instead of saving taxes. This means attorneys who want to keep their clients happy had better redo existing estate plans and shift the focus of estate planning services moving forward.

Here’s the reason for such dramatic change: For years, the traditional estate plan has directed that two trusts be established at the death of the first spouse: a marital trust and a credit shelter or residuary trust, also called A/B trusts. These trusts are designed to reduce estate tax, but there are additional income tax costs associated with them. Now with the new $11.2 million federal estate tax exemption, and the ability of a married couple to use both spouses’ exemptions at the death of the surviving spouse, most married couples do not have taxable estates and will not owe federal estate tax at death. As a result, the major benefits of a traditional estate plan are now non-existent, and the following major drawbacks remain.

Capital Gains Tax