Monday, May 24, 2010

Estate planning: reconsider in 2011

We receive questions from readers and our followers on Twitter (@family_finances) often, and we're happy to answer any inquiries. Let us know if you have a question for us. You can post it in the comments section or e-mail

QUESTION: As I understand it, the estate tax doesn’t exist right now. So does someone who is wealthy need to reconsider their estate plan? Should someone change their estate plan, even though we all know Congress will be likely to change the estate tax sometime soon?

ANSWER FROM DAN DANFORD: At the very simplest, estate planning is just figuring out what to do with what you have after you are gone. Each family is different, but most distributions take place after the last spouse dies. Since everyone eventually dies, everyone needs an estate plan of some sort. If nothing is done (no formal will or documentation), each different state has statutes detailing how property is distributed.

As your question suggests, much of high-end estate planning is tax-related. Former tax laws demanded tax on any estates over a certain size, so elaborate schemes (perfectly legal) were created to reduce or avoid those high taxes. As you also note, estate taxes were eliminated beginning in 2010 because Congress let the estate tax lapse, and the waiver is set to expire late this year. So, wealthy families, lawyers, accountants, and all their advisors are waiting to see how Congress changes the rules.

As an editorial aside, estate taxes are essentially a penalty against financial success, and I don't favor them. Any family that accumulates sizable wealth, does so after decades of paying annual income and other taxes. Charging them an "extra" tax because they were successful is ridiculous! But I digress.

The thing is, we don't know what is going to happen, yet. And, even when we do, those laws are subject to future change (as we've just been discussing). Most families with larger estates will need to visit with their attorney early next year. Depending on the actual laws enacted, they may need to adjust their plans to fit the new rules. Also, the entire topic needs to be revisited every few years because Congress makes tax changes - especially estate tax changes - frequently.

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