Stock estate planning meeting

The history of estate planning in the United States can be traced to the late 1700s. Since then, its purpose and protocols have undergone numerous changes. Even when just looking at relatively modern history, the estate planning landscape looks different than it did 20 years ago.

Jennifer Hallos, principal with McCarthy Lebit Crystal & Liffman in Cleveland; Mathew Kadish, partner with Frantz Ward LLP in Cleveland; and Marla Petti, senior wealth adviser at MAI Capital Management in Beachwood, said changes in legislation and societal trends have shifted some of the ways estate planning is done.

Kadish said the type of people coming in for estate plans are the same people that always have.

“The question is, how much of your motivation is tax and non-tax,” said Kadish, who has been in the field for 26 years. “Back in 2000, taxes were a very large tail on the dog, if not more than that. If Congress weren’t about to change the laws, it would not be a very big factor at all. Most people are making their estate plans based on where they want their assets to go, how they want them to pass, who they want to have in charge, economic and family concerns, and charity concerns.

One of the law changes that will be occurring is the gift tax exemption “sunsetting” on Dec. 31, 2025. Starting Jan. 1, 2026, the exemption will return to $5.49 million, adjusted for inflation. The estate tax exemption, which is $11.7 million per person, is essentially how much you can pass on to your beneficiaries before your estate would have to pay tax to the IRS. Back in 2000, it was $675,000.

“Historically, back when the estate tax exemption was significantly lower, tax minimization and tax deferral was really the guiding reason or cause for estate planning,” said Hallos, who has been in the field for 11 years. “And that’s just not the case anymore, because with the exemption being so high, probably about 99.8% of people don’t have an estate tax issue.”

Although the increased exemption results in taxable estates of only wealthy individuals, Petti said, estate planning is important for everyone.

“Estate planning ensures that your assets are transferred at your passing according to your wishes in the most efficient matter,” said Petti, who has been in the field for 28 years. “Proper estate planning takes measures to avoid probate which can be costly, cause delays, and be administratively trying. A plan should be designed for health care decisions that might need to be made in the event you are unable to do so on your own behalf.”

On top of legislation, Hallos said a lot of shifts in society have changed the motivations for some people doing an estate plan. One shift is there are a lot more blended families now compared to a few decades ago.

“When you have children from different marriages, there is different planning that needs to be done,” Hallos said. “Because each parent wants to protect their own children … usually that throws in just a layer of complexity if each spouse has their own assets and their own children.”

Another major shift that occurred was the ongoing COVID-19 pandemic. Petti said the pandemic reminded a lot of people that unexpected tragedies can occur at any time.

“Having your financial affairs and estate planning in order is a gift to your family,” Petti said. “It takes the guesswork out of what you wanted and may help avoid potential family conflicts. It also gives people peace of mind that the appropriate people will be the recipient of any assets in the manner intended.”

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