Like most estate planning lawyers, all through the first decade of the 21st century, I thought we would not see a return to the $1,000,000 exemption. As a consequence, the excellent estate plans I’ve been drafting for the past 9 years are now out of date. Under the new and unexpected tax laws these plans simply won’t provide the protection for which they were designed… unless they undergo an update process.
Now, all is not lost. The trusts my firm created are still solid trusts, and for married couples will continue to shelter the maximum amount of assets from estate taxes; but the flaw is that very little attention was paid to what happens to estates greater than $1,000,000, but less than $3,500,000 ($7,000,000 for married couples). Most families with assets valued in that range (including retirement accounts and life insurance proceeds payable on death) needed no or very little estate tax planning.
However, it appears likely that the exemption level will remain at $1,000,000 beginning in 2011 with no relief in sight. Even into the first quarter of 2010, most commentators thought Congress would act, but despite frequent news from Washington about the changes, knowledgeable commentators now almost unanimously believe there is no change coming in the foreseeable future.
More important than listening to pundits, however, is looking at the law; and right now the law is that everything transferred as a result of your death will be subject to a 55% estate tax. I am ethically bound to inform you of the law as it exists and morally obligated to offer you reasonable solutions to potential problems. Almost all of my clients believe paying 55% of the value of their assets over $1,000,000 is an unacceptable result.
That’s it in a nutshell. You have a beautiful estate plan drafted using the best tools available at the time of the drafting, but the planning is going awry due to unexpected conditions, and you should act now to protect your assets.
What can be done? There are numerous tactics and strategies available that can provide you some protection. Purchasing life insurance, if you can, is one, and a more aggressive gifting program is another. Integrating the ownership of your assets with the next generation is another good strategy. Each of these suggestions, and all others, have an actual economic or social cost associated with them—It is up to you to decide what to do.
Clients participating in my annual maintenance program (soon to be retooled as the Family Protector Program to better describe the reason why such a program is necessary) will hear more about these solutions when you meet with me. All others (or if you don’t want to wait) call me now for a discussion about these issues. It will be an hour well spent.