Recent changes to both estate planning laws and the federal tax law can have significant implications for your North Carolina estate plan. The impact of these changes makes it important for individuals to revisit their estate plan, possibly earlier than intended.

While there are significant implications for business professionals, the changes also impact estate planning, and here’s how:

1. Will my existing durable power of attorney, which incorporates the old statute, still be effective?

Yes, powers of attorney executed before January 1, 2018 that were valid under 32A are still valid after January 1, 2018. As a reminder, durable powers of attorney allow you to appoint an agent to write checks, open bank accounts or exercise the enumerated powers listed in the power of attorney. North Carolina recently enacted a new law governing durable powers of attorney in our state, bringing much-needed clarity to the law and putting North Carolina in line with the laws of a majority of other states.

2. Does this law have any effect on my health care power of attorney?

No, this new law did not repeal and replace the health care power of attorney act, therefore, the prior health care powers of attorney act is still in effect. Health care powers of attorney allow a named agent to make health care decisions for you if you are incapacitated. This may be a good time for you to review both your durable and health care powers of attorney documents to ensure that your appointments are still in line with your wishes.

3. What are the new estate tax and generation-skipping tax exemption amounts?

The estate tax exemption amount is the amount a decedent can leave a non-spouse without owing the IRS estate tax. The generation-skipping exemption is the amount a decedent can leave someone two or more succeeding generations below, without owing any tax. Both of these amounts are reduced in one’s lifetime through gifts. In 2017, the estate tax exemption was $5,490,000 per individual and the generation-skipping tax exemption was also $5,490,000 per individual. In 2018, both the estate tax exemption and generation-skipping tax exemption are $11,200,000 per individual.

4. Why should I care about this? My assets are not close to $11 million dollars.

If you are married and your current estate plan utilizes what’s called a credit shelter trust, or family trust, you may want to consider simplifying your estate plan. A credit shelter trust was fairly common in estate plans when the estate exemption amount was much lower. This is because it protected that exemption amount from estate tax at the first spouse’s death. Then, if the surviving spouse lived another 10 years, the entire amount (including growth) in the credit shelter trust was not included in the second spouse’s estate, and was thus protected from estate tax. Now, unless your assets are close to $11 million dollars, you probably don’t need a credit shelter trust. Instead, you could choose to give all your assets to your spouse or children directly, without the complication of a credit shelter trust.

5. What is the new gift tax annual exclusion?

The gift tax annual exclusion for 2018 is $15,000 per donee, and $30,000 for a married couple per donee (there is no limit on gifts between married spouses). The annual exclusion is the amount that you can gift to any person other than a spouse without using your gift tax exemption amount (and eating into your estate tax exemption amount). If you gift over the annual exclusion amount, you are required to file a gift tax return for that year due on April 15 of the following year. Keep in mind that qualified education expenses paid directly to a school and qualified medical payments made directly to a provider do not count as part of the annual gift limit.

With the changes in the law, it’s a good time to review your current estate plan to make sure it still meets your needs. If you do not have an estate plan, then 2018 is the year for you to get one drafted so that you have a say about how your assets are distributed — rather than the state.

Author: Virginia Pleasants

Virginia Pleasants is an attorney at Bell, Davis & Pitt focused on estate planning and administration, general business law, long-term care facilities and intellectual property. Some of her principal areas of practice include working with clients to develop estate plans, including the preparation of wills, trusts, and powers of attorney, as well as advising and guiding executors, trustees, and beneficiaries through the estate administration process. Virginia currently serves on the board of the Winston-Salem Estate Planning Council and the Winston Salem Foundation Community Philanthropy Builders.