What the tax deal means to your estate planWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
Recently, President Obama made a tax deal with the Republicans to extend the Bush income tax rates for two years. Along with the extension of the tax cuts, the issue of the federal estate tax was also addressed. As most people know, the federal estate tax in 2009 was 45 percent of anything exceeding $3.5 million. In 2010, this tax was repealed and families like the famous Steinbrenners will save more than $500 million dollars in taxes since father George happened to die in 2010. The estate tax was supposed to come back to a tax rate of 55 percent on anything exceeding $1 million.
The deal Obama made with the Republican lawmakers lowers the tax rate to 35 percent on anything exceeding $5 million for an individual and $10 million for a married couple. The law change also unifies the estate and gift tax exemptions allowing generous people to give away a lot more money without paying tax. What this means is that less than 1 percent of the population will end up paying any federal estate tax.
As the robot on the old television show “Lost in Space” used to say, “Danger, Will Robinson!” What The Retirement Guys see as a danger here is falling into a false sense of security. As an estate planning attorney, I (Mark) saw it back in the ’80s and ’90s when the federal estate tax exemption was first $600,000, then $750,000, then $1 million, then $2 million and finally $3.5 million. At these exemption levels many folks out there thought they did not need to do any estate planning. If they were focusing only on estate taxes, perhaps they were correct. Now with the exemption amounts $5 million to $10 million, many people may think the same thing.
Unfortunately, there are more issues to estate planning than just estate taxes. Here are a few of them:
1. Plan of Distribution — everyone should think through what they want to happen with their assets when they die. Who do you want to get your house, money and the grandfather clock?
2. Appointments — who do you want to appoint to administer your estate to make sure everything gets where it is supposed to go?
3. Probate Avoidance — if you have assets that will go through probate, you may want to consider how much it will cost and how long it will take. A living trust may be the ticket to saving substantial attorney fees and to help speed up the process.
4. What If You Don’t Die? — every good estate plan includes health care directives and powers of attorney to name an agent to handle matters if you become too sick to do so.
5. The tax ticking time bomb (Income Taxes) — So many people forget about doing any estate planning for their retirement accounts like IRAs. 401(k)s, 403(b)s, etc. These accounts many times have never been taxed and if you don’t deal with it now, somebody will. There are laws in place now that allow for creating income tax-free dollars so that your family can inherit an amount that is equal to that which is now in your account rather than something like 40 percent less when Uncle Sam takes a big bite.
6. Who Will Be the Guardians of Your Children? — if you have minor children, you should think this through. Who will provide them the care they need and has views on life similar to yours that will provide a nurturing environment?
7. Beneficiary Designations — many do not know that their will or trust does not decide where accounts like IRA’s and annuities go when they die. The beneficiary designation does. If you made these designations a long time ago, they may not be up-to-date.
The moral of the story: it is a good time for an estate planning checkup.
For more information about The Retirement Guys, tune in every Saturday at
1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities and Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc nor its representatives provide tax advice.
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