The Market Is Up 60 Percent Over The Last Four Years. How Does That Affect Estate Plans?

2019 was a wild year in the market, but in the end the Dow ended up 23 percent year over year. The S&P 500 went up 29 percent over the year, and the Nasdaq climbed 36 percent. In fact, the market is up about 60 percent since Donald Trump was elected President of the United States. Those are some pretty impressive gain. So impressive in fact that it should raise estate planning concerns, especially among married couples.

In 2010, the federal estate tax exemption was raised to $5 million, with adjustments for inflation. When Trump was elected in 2016, the stock market was at nearly the same position it was 1999, and no one had any idea things would take off like they have. 

As Jim Blase notes, due to this $5 million federal estate tax exemption, many estate planning attorneys shifted from a two-trust estate plan to joint plans. Those plans produced better income tax results for heir and often produced asset protection benefits for those living in “tenancy by the entirety” states.

All sounds well and good--and for the mass majority it is--but for all those with estate plans and more than $3 million and less than $5 million before 2016, the question becomes, how did those significant market gains affect their estate plan?

Of course, the simple answer should be that the federal tax exemption is currently just north of $11.5 million and therefore those couples’s plans should be fine. Unfortunately, things aren’t that easy. As of right now, the federal estate tax exemption is suppose to crater to $6 million in 2026. Of course, things could change sooner too.

The real trouble comes when you start considering the sad possibility of what could happen if one spouse were to die. If that became the case, then, when 2026 rolled around, any dollar over that $6 million threshold will be taxed at a 40 percent federal estate tax rate. Things only get worse from there if the survivor lives in a state that imposes their own estate tax.

The short of it is that because that market has done so well over the past several years, some married couples who executed or updated their estate plans over the last decade and are now using a joint plan, may need to have their plans reviewed. Any review might help some costly federal and/or state estate or inheritance tax consequences that might be a surprise for the surviving spouse.


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