Estate planning is an essential part of anyone’s personal finances. Even for those who have been diligent about planning for their spouses and heirs, this is a year when it may make particular sense to re-examine your strategy.
With the nonstop flurry of legislative activity in Washington, Congress still has not acted on the phase-out this year of the estate tax. If nothing is done this year, the heirs of any person who dies in 2010 won’t be liable for any federal estate taxes, no matter how big the estate. Yet the potential bad news will come next year when the estate tax is scheduled to return with a vengeance on all estates over $1 million in size (the threshold was $3.5 million for individuals in 2009) with a potential return to a 55 percent top tax rate.
Family trusts – also called bypass or credit shelter trusts – are of particular concern. In a family trust, individuals add a formula clause to their will or revocable trust which distributes up to the maximum amount of assets that can pass free of estate tax to the trust if the individual dies before their spouse. This helps ensure that once your spouse dies, neither these assets nor any appreciation on them will be subject to estate tax. But if you die this year, a failure to address the formula clause could potentially cause you to unintentionally disinherit your spouse.
The bottom line: Your estate plan needs extra attention in 2010.It’s worth a review with your estate planner and/or financial planner to help ensure your paperwork is in order and the previous plans you’ve made won’t cause problems.