Are the 2011 Estate Tax Law Changes Permanent?

July 7th, 2011

What Congress gives in the recent changes to estate law, Congress can take away. Remember that the new law is in effect for only two years. So, if you are looking for a way to protect your estate no matter the future changes in the law, it is a good idea to talk to an experienced estate planning law firm.

Important changes in the new estate laws

The new estate tax law passed for 2011 is actually an extension of the so-called “Bush tax cuts” except that the new law includes a provision allowing married people pool their estate tax exemptions – a feature widely known as “portability”.

What this means is that a surviving spouse can keep his or her own $5 million estate tax exemption and add any portion of the exemption that was not used by the deceased spouse. This is a new provision.

The question becomes what does this change really mean to previous estate planning and should people and families change their estate plans because of this additional portability.

The short answer is no.

Understanding portability

Here is an example of how portability works:

A spouse dies with an estate valued at $8 million. He or she has made $2 million in lifetime gifts. Now, the surviving spouse can use $3 million in unused estate tax exclusion and add their own $5 million for a total $8 million exemption.

The problem is that the rules are only in effect for two years.  And unless you are expecting to pass away before then, no one should change their plans for some potentially temporary reason.

The other problem is that mere portability does not address the totality of estate planning. Setting up a trust, on the other hand, can clear the issues revolving around the total exemption amounts for both spouses, including items like appreciation and credit protection.

Professional estate planners and attorneys will advise that relying on portability as a definitive benefit to the estate is not well advised since it can change at any time by Congress.

Find out more about why estate planning, estate tax and probate are still important in Virginia, after the most recent law changes by contacting Flanders and Wade today.

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Top 3 mistakes people make with their last will and trust

May 4th, 2011

Learn from these mistakes you can’t afford to make

Your last will and trust is something that many people avoid dealing with until it is often too late.  And while there are many ways to go wrong with your last will and trust, but here are three common mistakes that many people make:

#1 – Not having a last will and trust

Many people think that if their assets are not significant enough to merit a will and/or trust, but this is not true. No matter how big or small your estate is, drafting a last will and/or trust will ensure that your assets go to the heirs you choose and, where appropriate, are protected from unnecessary taxation.

#2 – Not updating wills or trusts as life progresses

Whether you change jobs, acquire assets, get married, or have a child, your will and trust should be updated to reflect these events. Without an up-to-date will, it will be nearly impossible to ensure that your loved ones are cared for and your assets preserved or transferred as you intended.

#3 – Forgetting about taxes

This is a common mistake for those who try to do their will and trusts on their own, without consulting a professional. It is easy to overlook certain taxes or other fees that may be charged to your estate after you pass away, leaving your heirs or your executor with the unpleasant task of addressing these bills. However, with an experienced estate planner, you can structure your estate to minimize the taxes that are due while ensuring that the funds are available and allotted for the necessary taxes.

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Impact of estate tax law changes in 2011

March 1st, 2011

What the recent changes mean for 2011 estate taxes

If you have been following the estate tax changes since 2010, you are probably aware that there have been some changes to estate tax laws this year, and there might be more to come over the next few years.

Here are some ways that this year’s estate tax law changes can potentially impact your estate:

Portability

Under the extensions of the Bush-era tax cuts, spouses can now share their exemptions though what is commonly referred to as portability
. This means that if one spouse only uses $2 million of their $5 million exemption before passing away, the other spouse is able to make use of the leftover $3 million in addition to their own $5 million for a total of $8 million worth of exemptions. However, if you are in the group that this change may affect, do not get overly excited – as of right now, these changes will only apply to spouses who pass away over the next two years.

Return of the Estate Tax

If someone passed away in 2010, their estate was not responsible for any estate taxes. However, the estate tax has returned in 2011, albeit at a lower rate than some anticipated. For those who pass away in 2011 and have estates worth more than $5 million, the tax rate will be 35%.

Gift Tax Reunified with Estate Tax

Exemptions and rates for gifts have been reunified with those for estates, making it a good idea for those with large estates to consider gifting some of their assets to their heirs as part of an estate planning strategy to minimize tax liabilities.

Don’t be afraid to ask for help

With the importance and complexity of these recent changes, don’t wait until it’s too late to create a plan to protect your assets. Contact us today at Flanders & Wade if you have any questions at all or to take advantage of our offer for a free consultation.

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Changes in Estate Tax Laws from 2010

February 8th, 2011

Big changes in 2010 for estate taxes

2011 is a new year, and for those concerned with estate planning (which should be everyone!), it brings new regulations regarding estate taxes. This is a good news/bad news scenario: while the changes to tax law from 2010 are not as dramatic as they could have been, there are still serious taxes facing those with larger estates, and potentially even larger taxes coming in a few years.

Here five important changes to estate tax laws that you should be aware of when assessing your estate plan for 2011:

  1. There is an estate tax, but not as high as many feared. At 35%, it is not as high as it was in 2001.
  2. The personal exemption amount is higher than it was before at $5 million.
  3. Gift tax has been reunified with estate tax, allowing everyone to have a $5 million gift tax exclusion.
  4. Spouses are allowed to pool their estate and gift exemptions for a total of $10 million per couple.
  5. The generation skipping transfer tax exemption is $5 million for 2011, to be indexed for inflation in 2012.

Proceed cautiously

All of these changes will only apply for the next two years, which means that it may not be in your best interest to make dramatic changes to an existing estate plan because you may need to change it again based on what the government decides in 2012. Consult the staff at Flanders and Wade today to find out how these changes may impact your loved ones and to make any necessary changes or updates to your estate plan.

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How to choose a guardian and how to assign their responsibilities

August 12th, 2010

Naming guardians and assigning responsibilities

Most parents, especially those with small children, have thought about who they want to take care of their children if they were no longer able to do so. While it is not a pleasant thought, this issue is extremely important.

If you have yet to name the guardian for your child in an official legal document, it is important to do this promptly to ensure that your children are left in the care of a person that you trust with this significant responsibility.

If one parent becomes incapacitated, an official guardianship and trust is not necessary to ensure that the other parent retains guardianship and custody of the child or children. Under the laws of the United States and Virginia, this is the normal procedure for guardianship. For this reason, establishing who will function as the guardian of one’s children is generally a choice made by both parents for the unlikely situation in which both parents are unable to take care of their children.

Who should be named a guardian?

Deciding who will be the guardian of your child is a major decision. There are many important factors to weigh in this decision making process as this person will not only provide for your children materially but also make important choices regarding the child’s education and healthcare.

When considering a potential guardian, factors to consider include their age, their physical limitations, time limitations, if they have children near the age of your child, and if they share the beliefs that you have both in relation to child rearing and values.

Whomever you choose for this significant role, it is a good idea to discuss your selection with that individual so they have an opportunity to ask any questions or clarify any concerns. Also, you may want to choose both a guardian and an alternate for each of your children.

What are the guardian’s responsibilities?

This is an area that is often confusing to those selecting a guardian. The guardian is the person who will be responsible for the physical well being of your minor children.  He or she will make decisions with respect to many aspects of your children’s lives, including housing, education and medical care.  The guardian’s responsibilities do not, however, include management of your children’s financial assets or the control of any trust that you create, including any trusts of which your children beneficiaries.  Those responsibilities are handled by a trustee.

The person whom you designate as guardian does not need to be the same person designated as either trustee or executor.

Choosing a guardian is a significant decision. When you need help drafting the documents that will enforce this decision turn to the law firm you can trust and call Flanders and Wade today.

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Simple Wills 101

August 9th, 2010

Simple Wills 101

It is a common saying in estate planning that even if you do absolutely nothing else, you should take the time to draft a simple will. While not appropriate for everyone, for some of our clients a simple will is an easy, quick way to sufficiently address estate planning needs.

What is a simple will?

A simple will is a legal document that addresses two major points: what will be done with your assets after you are gone and the person who will be in charge of settling your estate. That person is referred to as the executor of your estate and can be anyone you choose.

No matter who you designate as executor, it is a good idea to let that person know about your choice so that they are not surprised when they find out.

Is a simple will the right choice?

For individuals or couples who do not have children under the age of 18 or, have an uncomplicated estate and do not believe that their heirs will owe estate taxes, a simple will can be a good solution. In this situation, a simple will addresses the important issues and should suffice to ensure that your wishes are fulfilled.

When a simple will is not enough

However, there are many cases when a simple will is not sufficient to address the needs of your estate. The most obvious case when a simple will may not be sufficient is that of a family that includes children under the age of 18.

Some other examples of situations in which you may want to consider more complex estate planning include:

  • If you believe that someone may contest the will. When you believe that someone may choose to challenge your will, it may be a good idea to create a more secure document and estate plan to avoid delays and complications when it is time to execute your wishes.
  • If your estate is significant enough that it may require estate taxes. In this case, you may want to plan for how these costs can be minimized and address other issues that can arise.
  • If you have children with disabilities or from a previous marriage.  In these situations, contentions are more likely to arise, and it may be necessary to draft documents to ensure that these children are also taken care of when the time comes.

If you are looking for help with a simple will in Northern Virginia, contact Flanders and Wade for all of your estate planning needs.

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