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.
A big issue with planning is moving someone from thinking about planning, to actually getting them to action. Meet with an attorney to draft and execute a will, or update the will based on changes that may have occurred. All too often we see someone pass unexpectedly at a younger age, where planning was on their agenda, but just had not been completed. I meet parents all the time and ask them if they have done any planning, created their wills, established insurance and other vehicles for the continued benefit to their family… So many drive newer cars, have nice houses, go on great trips, but unfortunately much lower on their list (if even considered at all) is getting around to making sure their family, unequivocally their more important assets, is taken care of should something unexpectedly happen to them.
As CPAs who work with business owners, board members, 1040 clients and individuals in so many contexts, why discussions on life and estate planning do not make annual client meeting agendas for every client remains a mystery to me. We as CPAs should be pro-active to ensure our clients’s families are never left to the default care of the State.
You are correct. We work hard to have our clients make a plan. Then we need to get them to take action!
Great info. The only issue I have is that when you don’t have a will, and the State takes care of it through Intestacy laws, the results are often distasteful. Foe example, if you have a wife and three kids, and die with no will, you would expect the estate to go to your wife. And part of it does. She gets the first $100k, and 50% of the remainder. The kids get the other 50%. And in todays world, where the real property (house) may be the lion share of the estate, do you really want your wife and children to own the house together.
So while the State can take care of it, there are many resons to not let them.
Great point. Intestacy laws can create a very unfortunate situation.