Estate Tax Change is Coming

It seems that anyone running for office is bragging about how a vote for them will bring change. It’s almost like every candidate runs a version of the same add touting their prowess and attacking their opponent. If you are like me you can’t wait for the election just so we don’t have to see anymore ridiculous political ads. Does this election really mean change is coming? Well time will tell, however you can be certain that change is coming to estate taxes and estate planning. Will you be ready for these changes?

What Will the Exemption Be?

There are two pending proposals in Congress, one to freeze the exemption at $2 million and the other to freeze the 2009 exemption of $3.5 million. If Congress and President do not agree, then we will have an unlimited exemption in 2010 and a $1 million exemption for 2011 and beyond. Most believe that something will happen. But what will the change be and are you ready for any change that may occur?

Will the Exemption be Portable?

The next issue is whether the exemption will be portable between spouses. This is of vital importance since the exemption is not presently portable. This means that in order for a married couple to create two estate tax exemptions, they must undertake specialized planning and title their assets separately. This is now required so that whichever spouse dies first can use their exemption leaving a second exemption available for the estate of the surviving spouse. If the exemptions were portable, then any exemption not used by the spouse dying first, would be added to the exemption of the surviving spouse.

Such a sea change in estate planning would allow all clients to simplify the estate tax overlay in their estate planning and would be a significant benefit for all clients. It would not eliminate the need for estate planning, but would greatly simplify planning for most clients.

Estate Planning Remains Relevant

Some people question whether estate planning is relevant, especially in view of the current state of the economy. I assure you it is. As I originally wrote back in the 1980’s, when economic times are slow, estate planning becomes even more important for the protection of our families. Back then, I wrote an article entitled, Estate Planning During Recessionary Times. This was published in several journals and the points raised there remain important today. Let’s discuss several of those points here.

The primary reason that clients pursue estate planning to protect themselves and their families. This may include protecting property and tax planning, however, the primary motivation is almost always family. Since this is usually the primary motivation, we normally seek to protect our families more when times are difficult. If you think about this, it is our natural response to being threatened. In this case we are discussing a financial threat caused by current economic circumstances. Put simply, when times are tough, we normally pull back and make sure that we and our families are safe and as secure as we can make them.

In order to be secure, we first protect against the downside risks that face us. The most difficult challenge we would face would be an untimely, near-term disability or death. This usually forms the basis of all estate planning—protecting against an unplanned disability or death in the near term. This is why estate planning forms the basis of all planning; more important than financial; retirement and investment planning. One of my mentors once taught me that your retirement planning requires you to live long enough to fund it and enjoy it. If a near-term occurs, the best made financial plan becomes totally irrelevant if not based on a sound estate plan.

In actuality, all these types of planning should work together. Estate planning is just the foundation that all other planning is built upon. This is why estate planning is relevant, even critical during difficult times.

Are You Prepared?

To conclude, ask yourself these questions:

1. Is my estate current?
2. Does my estate plan incorporate HIPAA provisions in the Powers of Attorney?
3. Is my estate planning flexible enough to deal with the changes coming in the estate tax exemption?
4. Has my estate plan been reviewed in the last 15 months?

If any of these questions receives a negative response, then it is time for an estate planning review. Don’t delay, when times are tough, like now, it is the best time to review your estate planning and make sure you and your family are properly protected.

As always, we thank you for your interest and support and encourage everyone to vote.

Rule 230 Disclosure

No portion of this message is intended to be used and cannot be used to evade any tax or penalty.