Protect Your Legacy

Procrastination – it is characterized as the deferment or avoidance of an action or task to a later time. If you procrastinate on your duty to clean out the garage, the result is a cluttered and dirty space. If you procrastinate on the reviewing and updating of your tax plan, you are costing yourself money. Writing checks to the IRS becomes a painful reminder of that procrastination. If those quarterly checks don’t motivate you, what will?

Would you like to split up to half of your accumulated wealth with the government, jeopardize the future viability of the family business, and cause your loved ones financial and emotional drain into the next generation? This should not be your legacy, but it is exactly what lies ahead if you procrastinate to complete and update your estate planning.

Estate planning provides no quarterly or annual reminders. Attorneys dread the phone calls from grieving family members who just learned that a large check needs to be written to the IRS in a few months. These family members have just suffered a devastating loss and are now expected to handle issues with the IRS. Talk about liquidity problems!

So, where do you start? Stop making excuses. The excuses are many and varied, but don’t use them to justify your procrastination. Estate tax isn’t going away and it’s not a tax reserved for the very wealthy. Yes, your estate may in fact be large enough to worry about.

Do I really need to worry about estate taxes?

A common misconception among business owners is that there is no need to worry about estate taxes because their net worth will fall below the “need-to-worry threshold.” These same business owners are shocked when their attorney finally calculates the potential estate tax, given their current level of planning. What did you miss? A reliable value for the business, insurance death benefits and a simple will that results in the first spouse to die losing his or her million dollar exemption are just a few examples. Your will is not an estate plan. A simple will does nothing to minimize your estate taxes. An estate plan utilizes trusts, and other vehicles, to move assets during your life so that they are not included in your estate tax calculation.

What is included in my estate tax calculation?

Are you ready for some math? Add your non-business assets and subtract liabilities. Add the face value of life insurance policies that you own and the value of your business. (Note: It is imperative that any planning or legal document utilizes a number from an unrelated, licensed valuation professional. If it is not prepared by a professional, the IRS will likely challenge the value.) This will provide you with a “ballpark” number to consider the level of estate tax planning you need.

If your total estimated estate exceeds $1 million dollars, make arrangements to meet with an attorney who specializes in estate planning.

What can you do?

1. Don’t let a simple will be the extent of your estate plan. Utilize trust planning for assets and insurance to ensure that you and your spouse are taking full advantage of the current maximum exemption.
2. Your estate plan must include a living will that incorporates all necessary medical directives and the appointment of a health care power of attorney.
3. Take advantage of annual gifting. You can gift $12,000 annually ($24,000 for husband and wife joint gifts). State sponsored programs also permit funding for children’s and grandchildren’s future college planning.

Is it time to revisit your estate plan?

With the changing Federal estate tax exemption — $1.5 million in 2005, $2 million in 2006 through 2008, $3.5 million in 2009 and then likely revert back to $1 million in 2011 and beyond—complacency might not only be costly, but may produce a division of your estate in ways that you did not intend or desire. There is no question that this is a complex, confusing and seemingly ever-changing area of the law. If knowledge is power, then knowledge combined with proper and timely planning is king.

Does it really matter if the exemption is $2 million now or $3.5 million in 2009? Only if you are going to die in 2009 will you benefit from the $3.5 million exemption. Better yet, there is no estate tax in 2010. If you die in 2010 your entire estate could pass to your heirs with no estate tax. Planning note—you should review the medical directive in your estate plan if it contains language regarding decisions on life sustaining measures. Hopefully no decisions concerning when to end a life are based on estate tax ramifications, but stranger things have happened.

When do I need to update my estate planning?

Once you have a comprehensive estate plan in place, it should be reviewed annually and any time your family experiences a death, birth or significant change in net worth.

Unfortunately, you will never know exactly when you need it until it’s too late. Make sure your estate plan is complete and up to date. Don’t leave confusion and family disharmony as your legacy.