In 2025, major sections regarding your estate from the Tax Cuts and Jobs Act of 2017 (TCJA) are scheduled to expire. Depending on the size of your estate and its potential for growth, the sunset may impact your plan. The lifetime exemption, one of the sunsetting provisions, is crucial as it determines the amount of an estate that is exempt from taxation. Assets exceeding this exemption are subject to probate and estate tax. Since each state has its own probate laws, the information provided here is general. Be sure to consult with an expert that lives in your state for specific state and local laws.
In this article, we're exploring the potential sunset of the Tax Cuts and Jobs Act of 2017 on December 31, 2025, and how this affects probate, your estate plan, and more.
First of all, what is probate? Probate is the court process used to distribute a deceased person's assets, either according to their will or, if there is no will, based on state intestacy laws. Without a will, the state determines how assets are allocated, which may not align with personal preferences. Some states follow community property laws, while others adhere to separate property laws, affecting asset distribution at death. For instance, Louisiana follows laws rooted in French standards, where heirs, not spouses, inherit assets. Understanding probate and its complexities is crucial, but minimizing or avoiding probate is even more important. Here are some straightforward methods to help avoid probate.
Nearly every state has a probate process. For smaller estates, assets might avoid probate entirely if they are of low value or if beneficiaries are named on investment accounts, bank accounts, life insurance policies, and retirement plans. If the deceased had a surviving spouse, many states permit assets to transfer to the spouse through a will without probate, using marital transfer and any unused lifetime exemption. However, this might not be ideal in cases of second marriages or blended families, from the perspective of the deceased or their children. In such situations, a revocable trust may be beneficial.
A will directs how assets are distributed through probate, but a revocable or irrevocable trust holds the assets while the person is alive and avoids probate, as the court cannot control the distribution of assets within the trust. This process is known as “funding the trust.” Revocable trusts, also called living trusts, can be changed or revoked during the person's lifetime, which makes them more expensive to set up than a will. In certain family situations, a revocable trust may be preferable to a simple will. Your estate attorney can explain the benefits and drawbacks of trusts.
In contrast, irrevocable trusts cannot be changed or revoked once established. These trusts are even more complex and costly to create but can protect assets from creditors both during the person’s lifetime and after death. Revocable trusts do not offer this protection. Irrevocable trusts are sometimes more suitable for specific needs, such as charitable giving, liability protection from lawsuits, and tax avoidance. In our next estate planning article, we'll discuss how estate planning can impact taxes, including gift tax, estate tax, and strategies to minimize tax liabilities.
Creating an estate plan doesn’t have to be complicated. With the assistance of a trusted fiduciary advisor, the process can be straightforward and simple. We've made it even easier by creating an easy, simple checklist to guide you through the process! Download our Estate Planning Checklist here or click the button below to get started.
Need support? Contact a CPS Financial Advisor who will help you develop an action plan for your estate and will gladly attend meetings with you and your estate attorney to ensure your goals and wishes are clearly outlined and understood.