The recent passage of the Reconciliation Act on July 4, 2025, has raised questions surrounding estate planning, particularly regarding the necessity of trusts. With the estate tax exemption set to increase from $13.9 million per person in 2025 to $15 million in 2026, many individuals wonder if estate planning remains relevant, especially as most people will not be affected by estate taxes.
The estate tax, which only impacts a small fraction of estates, was a focal point of the new legislation. According to the Tax Policy Center, only about 4,000 estate tax returns were filed in 2023 indicating tax due. This number is remarkably low when compared to the 2.8 million deaths recorded by the Census Bureau in 2022. The vast majority of estates—approximately 99.86%—do not owe any estate tax.
Despite these figures, estate planning remains essential for a variety of reasons. “Taxes are not what drives estate planning,” asserts attorney Teresa J. Rhyne, who has over 35 years of experience in the field. She emphasizes that a well-structured estate plan is crucial for managing assets after death and addressing potential incapacity.
Understanding the Importance of Estate Planning
Many individuals question their need for an estate plan, particularly if they do not consider themselves wealthy. The reality is that anyone with dependents, property, or specific wishes regarding their assets should consider an estate plan.
For parents of minor children, individuals in blended families, or those with special needs beneficiaries, having a clear estate plan is vital. Rhyne notes that estates can become complicated for those with multiple properties, family businesses, or irresponsible heirs. Planning can prevent disputes and ensure that one’s wishes are honored.
An estate plan typically includes several key documents:
– **General Durable Power of Attorney**: This document allows a designated individual to make decisions on your behalf if you become incapacitated. It can be crucial for accessing financial resources or making healthcare decisions.
– **Advance Healthcare Directive**: This directive enables you to appoint someone to make healthcare decisions in line with your preferences, including life-sustaining treatments and end-of-life choices.
– **Will**: A will specifies how your assets will be distributed upon your death and appoints an executor to manage the process. While a will can establish a trust for minors, it is subject to probate court proceedings.
– **Living Trust**: If you own real estate or wish to control asset distribution over time, a living trust can be beneficial. It allows you to outline how your assets should be managed and distributed while avoiding probate.
Rhyne advises that anyone with a living trust should also have a “pour over” will, which transfers any assets not placed into the trust during their lifetime into the trust upon death.
Review and Maintain Your Estate Plan
It is crucial to ensure that your assets are titled correctly within your trust. For instance, property and bank accounts should be registered under the trust’s name, not merely listed in associated documents. Regular reviews of your estate plan are also recommended to account for life changes, as circumstances can shift more rapidly than tax laws.
While estate taxes may not impact most individuals, the reality of death and incapacity affects everyone. Establishing an estate plan can provide peace of mind and ensure your wishes are respected. Engaging in these discussions may even lead others to view you as financially savvy, as estate planning is often associated with wealth.
In conclusion, the recent changes in estate tax laws may not necessitate a drastic shift in planning for most individuals. However, the importance of having a comprehensive estate plan remains clear. As Teresa J. Rhyne highlights, preparing for the future is essential, regardless of one’s financial status.