On January 1, 2013, Congress passed a new tax law that contains a “permanent” estate, gift and generation skipping transfer tax exemption, keeping intact the $5 million dollar exemption that was introduced in 2011. The exemption for estate, gift and GST taxes starts at $5 million dollars and is indexed for inflation. In 2013, an individual can shield $5.25 million dollars of assets from federal taxes. The 2013 act also extended the portability feature, which allows a spouse to use his or her deceased spouse’s unused exemption. This gives a married couple the potential to protect $10.5 million dollars from federal estate and gift tax. To the extent tax applies, the new act also increases the top marginal tax rate from 35% to 40%. Although the new tax law may alleviate planning for federal taxes, it does not alleviate the need for proper estate planning to assure that your property passes to your heirs.

Ownership of your property is the cornerstone of your estate and how it will be distributed on your death. Your will plays a key role in directing the disposition of property you own in your individual name. However, property you own jointly with another person, and accounts, retirement plans and insurance policies with designated beneficiaries will not be governed by your will. State law (and in some instances federal law) will likely direct whom will own or receive a significant portion of your property. Therefore, it is essential to coordinate all beneficiary designations and property ownership with the directions in your will.

Digital assets, online accounts, access to your accounts, computers and phones are issues that your personal representative will need to address after your death. Much of our information is now stored on our computers, iPads, phones and in the “cloud.” Who will own these assets after your death? How will your executor/executrix and your beneficiaries gain access to this information?

Business owners must also consider what will happen to their business on their death. Implementing a succession plan, to family or other partners and shareholders, is key to avoid disruption of the business. It also takes pressure off your spouse and other family members to manage a business they are not familiar with.

In light of the new tax law, reviewing existing documents is highly recommended. Many older documents set up trusts to maximize use of the marital deduction and the federal estate tax exemption. In many cases, the creation of such trusts has become obsolete for tax planning purposes. We are seeing a shift away from creating mandatory trusts upon death to a “wait and see approach” with the use of disclaimers. This gives more flexibility to do additional post death planning if necessary. Trusts are still a great way to keep property protected from possible creditors and to maintain the property within the family. We would suggest that all documents be reviewed to assure they still meet your needs and the needs of your beneficiaries.

Portability is one of the most significant features Congress added to the tax code. Portability allows married couples to keep their property in joint names, rather than retitling assets so each has an equal amount of assets in individual names. Further, it helps to resolve difficult planning issues that have arisen with IRAs and retirement assets. However, to preserve its use, portability must be elected on an Estate Tax Return after the death of a spouse, even if the return would otherwise not be required to be filed. Every marital estate should be evaluated to determine whether filing for portability is advantageous.

Comprehensive estate planning also includes financial powers of attorney and health care powers of attorney. These documents play a vital role in ensuring your family has the ability to access your assets, if necessary, and to make health care decisions (including end of life decisions) if you are unable to do so. Without these documents your family will need to seek court intervention and decisions regarding your assets and wellbeing could be made by people you do not know.

Retirement planning and long term care planning also need consideration. Preservation of assets for your beneficiaries is a common goal for most of our clients, but don’t overlook your needs in favor of your beneficiaries.

Where to go from here? Ask yourself these questions:

  • Do I know how all my property is owned and whom it will pass to upon my death?
  • Do I know who I have named as the primary and contingent beneficiaries of my brokerage accounts, retirement plans and insurance policies?
  • Are there conflicts between my property ownership and beneficiary designations and how I want my property distributed under my will?
  • What electronic assets do I own? What will happen to my online and social media accounts after my death?
  • Are my estate planning documents more than three (3) years old?
  • Do I have a financial power of attorney and a health care power of attorney? • Do I know what will happen to my business upon my death?
  • When I retire, will I have sufficient income from my retirement assets?
  • If I need long term care, do I have sufficient income and assets to pay for it?

We can sit down and review all of these questions with you to ensure that proper planning is in place to meet your needs and goals.