Most people believe that they only
need to think about estate planning
if their estate is taxable. In fact, the
most compelling reasons for planning have
nothing to do with taxes. Despite all the nontax reasons for engaging in estate planning,
most estate planning discussions begin with
some understanding of the current status of
federal estate tax laws.
The estate tax applicable exclusion permits
the transfer of a certain amount of assets
estate tax free. The current federal estate tax
applicable exclusion is $3.5 million with a top
tax rate of 45 percent. Under the Economic
Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA), the federal estate tax will be
repealed for one year in 2010. In 2011, the law
brings back the pre-EGTRRA law, with an
exclusion amount of $1 million.
However, many think that President
Obama’s administration will have a new law
passed before the temporary repeal in 2010.
The expectation is that the exclusion will
remain in the $3.5 million to $5 million range
with a 45 percent tax rate and a top tax rate
of 55 percent.
If this occurs, it would likely result in a single person’s estate not being subject to the
estate tax if valued at less than $3.5 million.
Similarly, a married couple could transfer up
to $7 million to beneficiaries, without paying
estate tax. But, this does not mean you
should not plan ahead even if your estate is
valued under these amounts.
“Estate planning is not just about after-death issues,” says Ana M. Veliz, an attorney
with Katz Barron Squitero Faust. “It involves
planning during your lifetime, maintaining a
standard of living in retirement and planning
in case of mental incapacitation.”
Smart Business spoke to Veliz about estate
planning and what you need to be aware of in
order to have truly golden years.
What is involved in estate planning?
An estate plan provides for the management and disposition of your assets if you die
or if you become mentally incapacitated. It
can be will or trust based.
Estate planning should involve planning for
personal goals. It should also include protection in case of a catastrophic illness and
remarriage protection for your surviving
spouse, as well as divorce protection for your
children. You’ll also want to ensure your
assets are properly protected and transferred
to your intended heirs after you’re gone.
Estate planning should also involve passing
on a basic set of values and principals.
Discuss education, religious beliefs, values,
charitable giving and incentives with your
younger generations. Establish a family tradition of charitable giving. Also, discuss the
proper transition of your family business to
the next generation. Make sure you’re providing for your family’s financial security and
providing for special needs beneficiaries.
How do I know if I need estate planning?
If you and your spouse have children that
are minors, you need estate planning. You
need to document who your children’s
guardian would be if both you and your
spouse die. You also need to determine how
the children’s needs and education will be
provided for. Also, you’ll usually want to
specify at what age your children can receive
assets and/or how those assets can be used.
You’ll want estate planning if you have children with special needs. It’s especially important that you make sure your special needs
children continue to receive whatever government assistance they’re currently getting.
If you’re divorced and/or in a second marriage, you’ll need a good estate plan. In a second marriage, you’ll obviously want to take
care of your spouse, but you may want to
make sure that your children from prior relationships are taken care of, as well. In the
case of a divorce, you’ll have to determine
who will be your children’s guardian if the
noncustodial parent can’t be.
Finally, make sure your beneficiary designations are up to date. Also, if you want to
avoid probate and ensure that your personal
information doesn’t become public record,
you’ll need a revocable trust. If you have a
trust-based plan, make sure your assets are
properly titled in your trust’s name. With a
few exceptions, a trust-based estate plan is
the best way to avoid probate.
How can I avoid intra-family disputes?
First, clearly communicate your plans to
your family members so there are no surprises. You may also want to give your family
members the opportunity to participate in
the planning process. Create a family mission
statement where appropriate.
The more family members are involved in
the discussions and the more issues are dealt
with openly, the more likely the plan will
result in peace and harmony as opposed to
family disputes and grudges.
If I don’t have an estate plan, what consequences could I face?
Without an estate plan, you won’t be able to
control how your assets will be managed or
distributed if you die or become incapacitated. Your estate and assets could be wrongly
distributed. And, your family could face a
large, unsuspected tax burden.
How often should an estate plan be
reviewed?
You should review your estate plan every
three to five years. Also, review it whenever
you have a life-changing event, such as a marriage, a spouse’s death or the birth of a child
or grandchild. And, do a review if the needs
of your beneficiaries change.
ANA M. VELIZ is an attorney with Katz Barron Squitero Faust. Reach her at (305) 856-2444 x149 or [email protected].
