Sure, with a $5 million federal estate tax exclusion, a lot of people won't be subject to estate taxes. However, there are a few things to keep in mind. The $5 million federal estate tax exclusion is only good for 2011 and 2012. If there is no change in the law, in 2013 the exclusion will decrease to $1 million and the tax rate will increase from 35% to 55%.
The other consideration is state estate taxes. It used to be that the federal and state exclusions were the same. This is not the case anymore. For example, in Connecticut the current exclusion is $3.5 million. There is a proposal to decrease this to $2 million retroactively to the beginning of 2011.
Why do you need estate planning?
With the increase in the federal estate tax exclusion, you might not think you need estate planning. However, you still should consider the question regarding your will and who will receive your assets when you pass away.
The state has a process if you don't have a will. These are called "intestacy laws." Basically, the state will dictate where your assets go when you pass away if you don't have a will. Assuming most people want a say in this process, I would strongly reconsider your estate planning matters.
People get married; many have children, perhaps get divorced and maybe remarry. Having blended families certainly can complicate estate planning matters.
What is involved in an estate plan?
The basic documents are:
- Power of Attorney
- Health Care Proxy
- Trust(s) perhaps
How do you get your estate plan?
Meet with an estate planning attorney and discuss with them what you would like to see happen.
ACTION ITEM: Estate Planning is not dead. Sure, the federal estate tax exclusion of $5 million is significant. However, this doesn't mean that you don't need an estate plan.
Thomas F. Scanlon, CPA, CFP®
Photo From Creative Commons