Even if you don’t need estate TAX planning, you still need estate planning!

Wednesday, December 8, 2010

http://www.marketwat … fects-you-2010-12-08

With the recent announcement of a deal made between President Obama and the GOP leadership in Congress, many Americans are asking about the relevance of estate planning if their net worth is well below the proposed $5 million exemption from estate taxation.

While it may be true that the average American does not need to plan for minimizing his or her tax burden–better said, his or her heirs’ tax burden–everyone, and that means EVERYONE, needs some form of estate planning. This includes a simple will or trust, an AB trust, and/or pour-over wills; it also includes planning for mental and physical incapacity in the form of power-of-attorney agreements for health care and asset management.

Many people questioned whether they needed to worry about estate planning until the statutory dust settled on December 31, 2010. If Congress did not act to amend the estate tax code by that date, the exemption from taxation per individual returns to $1 million on January 1, 2011. The tax had been incrementally increasing from $1M over the past 9 years to reach infinity in 2010. Now, that provision will be sunsetting on December 31, and the deal struck by the White House and GOP leaders this week could replace it.

With a $5 million exemption, over 90% of Americans would be shielded from estate tax liability. Throw in the proposed “portability” provision–which allows a surviving spouse to combine with the decedent spouse’s exemption–and 99% of Americans would have no estate taxes due upon death. In 2009, with a $3.5 million exclusion, only about 16,000 decedents filed a federal estate tax return.

Long story short, whatever happens to the estate tax law, it is likely not to impact the vast majority of Americans. This is perhaps one of the strongest arguments in favor or eliminating the tax altogether: it is simply not a viable revenue stream for the federal government. Since 1945, receipts from estate and gift taxes collected in the US have accounted for only 1-2.5% of total revenues. http://www.cbo.gov/f … te_GiftTax_Brief.pdf

It is still relevant and necessary to get basic estate plans in place. Make things easier for your loved ones by preparing an estate plan that provides not just for the disposition of your assets but your healthcare and financial security.

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