Be Strategic With Your Estate Plan

Individuals tend to be complacent about preparing for their own eventual demise, mostly because it is something they do not want to think about. However, it is an inevitable part of life, and planning for it ahead of time would benefit both you and your loved ones. Before setting up your estate plan, the following items should be taken into consideration.

• Structure your estate plan to take advantage of dual estate tax exemptions – When an individual passes away, the first $3.5 million (in 2009) of their taxable estate is exempt from federal estate tax (inheritance tax). Any amount over that is subject to tax. For married couples, there is an unlimited marital exemption so that the surviving spouse can inherit the deceased spouse’s estate without paying any inheritance tax. Consequently, the entire joint assets are placed in the surviving spouse’s estate, and when the surviving spouse passes, his or her estate only receives the benefit of a single estate tax exemption.

However, a married couple can escape estate tax on assets of up to two times the exemption amount ($7 million in 2009) if the couple's wills are drafted to take full advantage of each spouse's own exemption amount. The wills should provide that, when the first spouse dies, the amount protected from estate tax by the available exemption amount passes to a trust, from which the surviving spouse can benefit during his or her remaining lifetime, but which will not be included in the surviving spouse's estate at death.

If you own a home, carry some life insurance, and are entitled to retirement plan benefits from work, your gross estate may already exceed the threshold at which estate tax liability begins. Since the top estate tax rate is 45%, planning to make the best use of your exemption is essential. For individuals with very large estates, there are additional estate planning techniques that can help maximize the amount of your estate that will pass to your heirs.

• Make adequate beneficiary designations – The beneficiary designations for your insurance policies, annuities, employer retirement plans, and IRA accounts should be up-to-date and coordinated with your overall estate plan. You may also have designations that are no longer appropriate due to deaths, marriage, divorce or other issues that have changed over the years. There are also tax rules that specify distribution options for IRA and pension plans that should be considered in your estate plan. Failure to properly plan could result in disastrous income and estate tax results.

• Consider the options available to finance long-term care needs – The life expectancy of Americans continues to increase, and the older we become, the less likely we are able to live independently. An AARP study has found that 82% of individuals age 85 and older have a chronic condition or disability for which they might need assistance. The cost of nursing and hospice care can quickly devour your personal financial resources and ultimately burden your spouse or other loved ones. Unless you are wealthy enough to be self-insured, planning options to consider include long-term care insurance or life insurance to replace the wealth lost by the family to long-term care costs. Although Medicaid is another source of funds for long-term care financing, it may not provide a standard of living that is desirable.

If you have a specific question regarding any of the information provided here, please call our office for an appointment.

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