Last minute changes to estate tax laws needed?

The best age is the age you are.—Maggie Kuhn,U.S. activist and social worker

As you know, the fiscal cliff legislation, officially known as the American Taxpayer Relief Act of 2012 (“ATRA”) made the estate, gift, and generation-skipping tax exclusion “permanent” at $5 million (inflation adjusted). The legislation also included increases in income tax rates for high-earners. In fact, for couples earning more than $450,000, the top ordinary income tax rate went up to 39.6% and the rate for long-term capital gains and qualified dividends went to 20%.

As you know, Congress acted “after the last minute” as well-known elder law attorneys Fleming and Curti write in their newsletter.  No matter when it was on New Year’s Eve, it was close enough to the deadline to enact some permanent changes to estate tax laws.  So, does that mean you need to make changes in your Estate Plan?

In a word, yes. At least, it is reason for reviewing whatever estate plan you have, and determining whether it is still going to meet your goals

Remember when Congress adopted estate tax exemption legislation and planned for it to “sunset” in 2010?  No one believed they would actually let that happen – but they did.  We’ll probably never forget it.  That was the year George Steinbrenner, owner of the New York Yankees, died, and his estate paid no “death taxes.”.  For a long time, estate and elder law attorneys have been telling clients that they will need to revisit their estate plans once the scheduled changes in the tax law exemptions were finally resolved. They are now resolved. Of course Congress could act again, and make further changes — but that seems unlikely, and probably would only happen after a lot of discussion. In other words, you should treat the current federal estate tax law as likely to outlast the life expectancy of your estate plan.

What needs changing, and how do you know if you are a candidate for change? Of course, your attorneys can only answer that after a consultation during which your current plan is reviewed.  For that, you should make an appointment and bring detailed and up-dated information to the appointment with you.  But here is a preview of what the attorney will likely talk with you about.

Do you have an existing A/B (or marital/bypass) trust split in your plan? You probably do if you are married, if you are worth anything close to $1 million (or more), and if you had your estate plan prepared in the past quarter-century or so. Do you still need that trust split? If you don’t need it, does it hurt anything to have it in your plan?  These questions should be discussed with your advisor.

Does your existing trust have “disclaimer trust” provisions? If so, you might consider revising to take them out. They probably don’t hurt anything, other than to make your estate plan that much more complicated, and to distract you from your real concerns — taking care of your family, supporting your favorite charitable cause(s), or whatever is truly important to you and your estate plan.

Are you a surviving spouse, living with an already-funded bypass/credit shelter/decedent’s trust? You might be able to make changes, depending on the provisions of your trust, and your circumstances.  There might be ways to simplify at this point.

Has it been more than five years since you last visited a lawyer? If so, it’s time to update your estate plan anyway — just think for a moment about where you were five years ago, what you didn’t yet know about your family, your finances or whatever has changed. Even with no congressional action it would have been time to revisit your estate plan if it’s been that long.

Have your circumstances changed very much since your last estate planning visit? Have you gotten a new child or grandchild? Have you moved to a new state, married or divorced, become significantly more wealthy (or less)? Bought a vacation home in another state? Become interested in a new charitable undertaking? If any of those things describe you, it’s time to talk to your estate planning lawyer.

Are you worth between about one million dollars and five million dollars (make that ten million for married couples)? Then you are in the group of people who most need to check in with your estate planning lawyer.  Don’t forget.  In Maryland, the state mandates estate taxes for estates over one million.

This column is meant to encourage everyone to review their estate plans in light of the relative permanence in the federal estate tax rules.

What bad things happen if you make an appointment with your estate planning attorney? Well, you will probably have to write a check — but of course the cost of failing to plan is usually much higher than the cost of planning. You will also have to gather some information — but the attorney is much more interested in round numbers and rough conceptions about your assets than in picky details about which stock investments have done well or precise values of your family business. Most will strive to make your visit as painless as possible.

Thank you for reading.  Stay well.  See you next week.