Estate planning attorneys like to remind their clients that estate planning is an ongoing process. One of the reasons why it is important to recognize this fact is because your own life situation is likely to change over the years and many of these changes impact your estate plan. Changes in marital status, additions and subtractions to the family, and the ebb and flow of your financial profile can all be matters that have an effect on your legacy plans.
But in addition to these types of personal matters there are also things that are out of the control of the individual that you would do well to stay continually aware of. For example, whether or not a given individual is exposed to the estate tax is something that changes virtually year-by-year. To go back a few years, in 2008 the estate tax exclusion was $2 million; in 2009 it was $3.5 million; it was repealed for 2010; and it is $5 million as of this writing. The estate tax exclusion is scheduled to remain at $5 million through 2012, but if no new legislation is passed in the meantime it will go down to just $1 million in 2013.
So as you can see, the estate tax parameters are constantly shifting. The heirs of someone who passed away in 2009 with an estate worth $3.5 million would have had no estate tax liability. But if this person would have passed away on New Year’s Eve in 2008 when the estate tax exclusion was $2 million his or her heirs would have been taxed at a rate of 45% on the $1.5 million that exceeded the exclusion amount. This would have resulted in a $675,000 tax bill. That’s a lot more than the zero dollars that would have been due had this individual passed away on the next day.
How do you respond to these ever-shifting dynamics? The most efficient course of action would be to place the matter into the hands of an expert by retaining the services of an experienced estate planning attorney.