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New Law Means 2011 Could Be Time To Review Your Living Trust

Good estate planning does more for you and your family than just avoid unnecessary taxes and probate. It provides you with meaningful peace of mind as well. Put the right plan in place, keep it up to date, and your family can actually be strengthened – rather than weakened – by how you arrange your affairs.

Of course, reducing or eliminating taxes is also very important. The various tax laws affecting an estate plan change regularly. For example, just last December, Congress and President Obama struck a two-year tax deal. The deal means that in 2011 and 2012 every American who passes away can leave up to $5 million to their loved ones without paying any estate tax. For estates bigger than $5 million, the tax rate was set at 35%.  Compare this to the previous law under which estates would have had to pay 55% of every dollar over $1 million, including on life insurance proceeds and retirement accounts.  It’s too bad this new law lasts only two years!  If it isn’t continued after the 2012 election, things automatically reset to where they would have been without the changes (i.e., a $1 million exemption and a 55% tax rate).

How Are You Affected?

The new law may have a greater effect on your estate than you think.  For more than 50 years it was common to use a written, mathematical formula to divide the assets of a married couple to maximize estate tax savings when the first spouse died. We called this “A-B planning.” Formulas were also used to designate estate funds to charitable causes and to benefit non-spouse family and friends.

Now that $5 million is exempt from estate tax, these “formula clauses” in wills and revocable trusts may not work the way they were originally intended. They may also force a surviving spouse to live with more complexity in their life than they really need.

What Should You Do?

The most important thing to do now is to make sure that your property will be divided according to your desires.  If you are not already one of our clients, please contact my office as soon as possible to schedule time to review your estate plan. I can then make some recommendations for you to consider and can discuss any changes that I believe are necessary given the new law. As I’ve already noted, tax laws change frequently; they have changed significantly over the past decade. A good estate plan – one that really gives you strong peace of mind – must be flexible enough to make sure your wishes are fulfilled regardless of the changes that have come and are coming.

If you are one of our clients, please know that we drafted your plan to “fit” your family. It will still work the way you intended it to work when you signed it – despite the new law. But that doesn’t mean we don’t want to hear from you. You can always call or send an email without worrying about getting a bill. Feel free to ask questions about your plan at any time.

Laws change, families change, and your needs and interests change.  Sometimes your estate plan should change accordingly.  The deal just struck in Washington, D.C., could be a good reason to make sure your plan still works the way you want.

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