Dedon on Estate Planning

Taking Care of the Basics

Whether Congress acts in this lame-duck session to allow taxpayers to protect more than $1 million from estate tax in 2011 is beyond our control. Despite this uncertainty, certain fundamental steps are important for all of us, regardless of the exemption amount. These steps include the following:

1. Ensuring you have in place the necessary estate documents, which will always include a Will, Power of Attorney, Medical Directive, and in many cases, a Revocable Trust (collectively "Estate Documents").

2. Preparing Trusts for children to ensure the inherited assets remain in the bloodline rather than with former son-in-laws, former daughter-in-laws, or other predators.

3. Regarding the Revocable Trust, creating and funding the Trust to avoid probate. In addition, creating the Revocable Trust with the necessary credit and marital trusts to take advantage of the exemption amount, whether it is $1 million, $3.5 million or $5 million.

4. Scrutinizing the beneficiaries of your life insurance, IRA’s, 401(k)’s, annuities, etc., to ensure these beneficiary designations are consistent with the intent of your Estate Documents.

5. Scrutinizing the title of your jointly owned assets, such as real estate, brokerage accounts, bank accounts, etc., to ensure these assets are titled consistent with the intent of your Estate Documents.

6. In addition to the Estate Documents, considering whether additional planning is necessary to avoid estate tax, such as an Irrevocable Trust for life insurance and other advanced planning tools.

 

Taking Care of the Basics

Whether Congress acts in this lame-duck session to allow taxpayers to protect more than $1 million from estate tax in 2011 is beyond our control. Despite this uncertainty, certain fundamental steps are important for all of us, regardless of the exemption amount. These steps include the following:

1. Ensuring you have in place the necessary estate documents, which will always include a Will, Power of Attorney, Medical Directive, and in many cases, a Revocable Trust (collectively "Estate Documents").

2. Preparing Trusts for children to ensure the inherited assets remain in the bloodline rather than with former son-in-laws, former daughter-in-laws, or other predators.

3. Regarding the Revocable Trust, creating and funding the Trust to avoid probate. In addition, creating the Revocable Trust with the necessary credit and marital trusts to take advantage of the exemption amount, whether it is $1 million, $3.5 million or $5 million.

4. Scrutinizing the beneficiaries of your life insurance, IRA’s, 401(k)’s, annuities, etc., to ensure these beneficiary designations are consistent with the intent of your Estate Documents.

5. Scrutinizing the title of your jointly owned assets, such as real estate, brokerage accounts, bank accounts, etc., to ensure these assets are titled consistent with the intent of your Estate Documents.

6. In addition to the Estate Documents, considering whether additional planning is necessary to avoid estate tax, such as an Irrevocable Trust for life insurance and other advanced planning tools.

 

Lame-duck Congress and Estate Tax

As Congress returns for the lame-duck session, inquiring estate planning professionals and U.S. citizens want to know: will Congress address the estate tax mess this year? The next few weeks will be the last opportunity Democrats have to enact legislation as the controlling party in the House and Senate. Come January, the Republicans will regain control of the House and they have picked up six Senate seats.

If Congress does not act, taxpayers can only protect $1 million from estate tax in 2011. In 2009, the exemption amount had been $3.5 million and some legislators, mostly Republicans, believe that the exemption amount should be even higher. For 2010 only, there is no estate tax. It is increasingly likely that Congress will not retroactively impose an estate tax this year.

So will next year bring a $1 million exemption amount? It is difficult to predict whether Congress will even address the issue this session. What is upper most on Congress’ mind are the expiring Bush income tax cuts. If current law expires, the wealthiest taxpayers would pay tax at rates approaching 40%, and capital gain rates would increase from 15% to 20%. It would affect families earning $250,000 or more. If Congress focuses on only the income and capital gain rates, the estate tax exemption will at least start 2011 at $1 million.