Several weeks ago, the Obama administration released a proposed budget for 2014. A recent article in the Wall Street Journal reports that this budget, if adopted, will have several implications for estate planning.

While the budget primarily tackles issues related to education, Social Security, defense, and health care, it also includes measures that could impact estate planning tools. The following are several highlights from the article:

Retirement accounts: Under the proposed budget, retirement accounts would be capped. Individuals would be barred from amassing over $3 million in their IRA (individual retirement account). Though most people would not be affected by this cap, some could see a meaningful impact to their estate planning.

Changes to the estate tax: The proposed budget would increase the estate tax rate from 40% to 45% and would decrease the estate tax exemption from $5.25 million to $3.5 million. This would expose more estates to the estate tax. In addition, “the budget doesn’t state that the estate tax exemption amount will be indexed for inflation,” according to the article. As inflation increases, more estates may be subject to the tax in the future.

Changes to Generation Skipping Transfer Tax-Exempt Dynasty Trust: This type of trust allows an individual to pass on wealth that has accumulated in a trust to beneficiaries over several generations. Currently, there is no time limit on this type of trust. Under the proposed budget, however, the trust would be limited to 90 years. Despite this change, the trust may still be a useful option for many. However, the change may cause some to take a second look at this estate planning strategy.

If you have questions about how your estate plan could be affected, feel free to contact our Huntsville estate planning attorneys.