Ask many people if they have an estate plan and they just roll their eyes. With the Federal Estate Tax Exclusion at $5.12 million most people will not be subject to estate taxes. In Connecticut, the exclusion is $2 million and many people won’t be subject to this tax. So…why do I need an estate plan?
First, the Federal Estate Tax Exclusion will decrease in 2013 from $5.12 to $1 million, unless there is congressional action. Additionally the rate will increase from 35% to 55%. This will make more taxpayers subject to this tax and increase the tax.
Second, whether you are subject to the tax or not, estate planning is all about your family.
Everyone needs a will. In a Will you will appoint an executor (or executrix). Their job is to gather all of the assets of the decedent, pay all the expenses, file income tax returns and make distributions to the beneficiaries.
Your will directs who gets your property and when. This process will be monitored by the local probate court.
If you don’t have a will, don’t worry. The State will take care of it for you. Most states have intestacy laws which dictate how assets will be divided when someone passes away without a will.
Power of Attorney
A Power of Attorney allows another party to act on your behalf. A Power of Attorney can either be a General Power of Attorney or a Durable Power of Attorney. With a General Power of Attorney, the power of the agent ends when the principal becomes incapacitated or passes away. With a Durable Power of Attorney, the powers continue even when the principal becomes incapacitated but ends when the principal passes away.
Health Care Proxy
A Health Care Proxy is a legal document that allows you to appoint someone else to make health care decisions for you if you can’t.
Some people may need a trust. Setting up a trust because you have minor children is one example. A Trust can be either irrevocable (can’t be changed) or revocable (they can be changed). Generally an irrevocable trust is used in connection with life insurance. If this trust is structured and administered properly it will keep the death benefit out of the taxable estate. These are known as Irrevocable Life Insurance Trusts or ‘ILITS.’
Revocable Trusts are much more flexible and provide easier management of someone’s affairs during life and when they pass away. Revocable Trusts become irrevocable when someone passes away.
ACTION ITEM: Make an appointment to go see an estate planning attorney. Get your estate plan done. Remember, you can’t take it with you.
Call us at (860) 646-2465 or e-mail Tom Scanlon at Toms@borgidacpas.com if you would like help with your estate plan.