As of January 2, 2013, the Federal estate and gift tax exemption amount has been permanently increased. If you pass away in 2013 and your lifetime and after-death transfers are under $5.125 million, your estate passes to your loved ones, free from all federal estate and gift taxes.
This is a huge change for the estate planning community. Not too many years ago, the exemption amount was only $600,000. As a result, most estate planning was tax driven. If you were married, you got a joint trust when the value of your estate was below the exemption amount, and separate trusts when your estate was above the exemption amount.
All the estate planner had to do was grab the “right” form out of the form book, slap your name on it, and voilà, you had an estate plan. This has been traditional estate planning for years. Consequently, the new law really has turned traditional estate planning on its head.
I have read a number of articles lately by experts in the field extolling how traditional estate planners are going to have to change to survive; estate planning can no longer be tax driven. According to these writers, there now needs to be reasons to do estate planning other than tax planning.
I read these articles with both concern and amusement. Concern, because the new law has triggered such a sounding of the alarm claiming that the focus of estate planning has to change away from taxes to something else. And amusement, because in our office, although taxes may be an important component of an estate plan, taxes are rarely the primary focus of a plan.
These writers confirm that many people, including many estate planners, see estate planning as death planning. Many of our clients think of estate planning the same way prior to coming into our office. However, estate planning is also life planning. For our clients, by the time we draft an estate plan, there are numerous reasons to do the plan, other than estate taxes.
In our office, we use a little different definition of estate planning than most estate planners. Our definition of estate planning is: I want to control my property while I am alive and well; I want to plan for me and my loved ones if I become mentally disabled; and when I am gone, I want to give what I have to whom I want when I want the way I want.
Because of this, the new law has affected us and the way we do planning very little. With this definition of estate planning, mental disability is not overlooked. I believe that everyone over the age of 18 who is not legally incapacitated, no matter how large or small his or her estate, should have at least a will-based plan, which consists of a durable financial power of attorney, a durable power of attorney for health care and a will. Most people with any assets would also benefit from a trust.
So what are some of the reasons that you would want to set up an estate plan if it does not have to do with taxes? Well, here are just a few:
- Maintain control of your assets while you are alive and well.
- Provide for you and your loved ones upon your mental disability.
- Choose who will manage your assets upon your mental disability.
- Choose who will make your personal and health care decisions upon your mental disability.
- Plan for your long-term health care, including decisions regarding life support and nursing home care.
- Avoid guardianships and conservatorships, the living probate.
- Assure that your wishes and directions are carried out.
- Choose who will manage your assets upon your death.
- Teach fiscal responsibility to your children and grandchildren who may not be capable or experienced in managing assets.
- Protect your children from a prior marriage.
- Provide for the needs of your surviving spouse.
- Provide for the education and special needs of your children and grandchildren.
- Protect assets you leave to your beneficiaries from lawsuits, divorcing spouses, new spouses, bankruptcy and other claims.
- Keep matters private among the family.
- Avoid death probate.
- Prevent or discourage challenges to your plan.
- Reward or encourage your beneficiaries who make intelligent life decisions, and prevent depletion of your estate by those who do not make wise decisions.
- Recognize the differing needs and abilities of your children; fair is not necessarily equal.
- Provide for your pets.
- Provide for your favorite charities.
As you can see, you have a whole lot of reasons to do estate planning, other than taxes.
By: Matthew M. Wallace, CPA, JD
Published edited March 31, 2013 in The Times Herald newspaper, Port Huron, Michigan as: There’s more to estate planning than death and taxes