We have had over a decade of change in the Federal Estate Tax laws. In 1987, the government increased the amount an individual could transfer before Estate Taxes were owed to $600,000. This exemption is now at $3.5 million. We are supposed to be looking at Estate Taxes being repealed for one year in 2010. Thereafter, the estate tax rate in 2011 is slated to revert to the first $1 million with the highest estate tax rate being 55 percent.
It is believed the Democratic Party is determined not to see the estate tax repealed and will be proposing a temporary one-year measure to prevent estate taxes from being repealed as of January 1, 2010. The estate tax current limit of $3.5 million will probably be extended for another year. There is speculation an amendment could be proposed to exempt estates under $5 million from estate taxes, with any amounts above that being taxed at a 35 percent rate.
In light of this and other changes, taxpayers need to review their estate plans with the following issues in mind:
Simplify if possible. Many people who once had taxable estates no longer do. They may be able to significantly simplify more complicated estate plans that were necessary in the past to eliminate or decrease taxes due at death.
Review life insurance. All consumers should have their life insurance policies reviewed if they have had them for more than a few years.
Policyholders should never simply drop policies they no longer need or can afford. They may be giving up a large benefit for their heirs and they may be able to sell the policy for a larger return than the policy’s cash surrender value.
Refocus estate planning. The real purpose of estate planning is to leave the legacy you want. The estate plan people create can benefit children and grandchildren for decades to come, or it can cause familial strife that tears a family apart. The choice of executor and trustee and the terms under which heirs will receive property are vital issues that deserve your full consideration, regardless of whether taxes are an issue.
Ms. MacDonald’s practice is limited to Estate Planning, Trust Administration, Probate and Elder Law. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 27013 Langside Avenue, Suite A in Santa Clarita, California. She can be reached at 661-251-1300.