Estate taxes might not affect you, but you still need a plan

There's good news if you’re concerned about estate taxes. For the next two years (2011 and 2012), the value of your estate that’s excluded from tax is set at $5 million. And the top rate on taxable estates is 35%.

The $5 million exemption is per person, thus a couple’s exemption is $10 million. Also notable in the law is the new portability of unused exemptions. Under prior law, couples frequently performed complex estate planning to take full advantage of the then $7 million exemption for couples. Now the law allows a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without all the complex planning.

So what should a taxpayer do to take advantage of the current rules? First, estimate the size of your estate and if you may be subject to taxes, consult us and your attorney for planning options. For example, you might consider taking advantage of the favorable gifting and generation skipping tax exemptions by making tax-free gifts to planned beneficiaries now. It’s important to realize that not only will planning for these events minimize potential estate tax, but also you will be preserving assets for your family.

If your estate is under the tax threshold, don’t assume that you can just ignore estate planning. If you have a plan in place, you should review and update it at least annually. First, your financial situation might have changed. Or there could be changes among your heirs or beneficiaries. Think of all the births, marriages, deaths, and divorces in your extended family during the last year.

If you don’t have an estate plan, establish one as soon as possible. A plan is not just about avoiding estate taxes. At a minimum you need the following:

  • A will or trust to specify who will inherit your assets and to appoint a guardian for any minor children.
  • A medical directive or “living will.”
  • Health care and financial powers of attorney.
  • Updated beneficiary designations for insurance and pension assets.
Questions?

Contact us or call: 650-344-6525.

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