Changes Looming for Estate Planning: Is it time to review your estate plan?

4/2/2009

With all of the attention focused on the bailout and tax relief to bolster our economy, little attention has been given to looming changes in the estate planning field. For those considering lifetime transfers, now may be a good time to look at the various options available before any new changes limit the tax benefits. Regardless of the size of your estate, it is recommended that your review your plan once every five years – and more often if there are significant changes in circumstances such as divorce, death, sale of a business or a significant economic downturn.

Of immediate concern to many people is the estate tax exemption, which allows an individual to transfer up to $3.5 million in assets upon death without any transfer tax. Under the current law, the exemption will be repealed entirely in 2010, allowing the transfer of an unlimited amount of wealth, while in 2011 the exemption is scheduled to return to the $1 million level (where we were back in 2001). For Minnesota residents, there is an additional complication: Minnesota has an estate tax assessed currently against wealth in excess of $1 million. A misconception is that the tax only applies to assets in probate; but it actually applies to all assets in which the decedent has an ownership interest at death.

It is anticipated that Congress and the President will enact legislation before 2011 (and hopefully before 2010) to clarify the law and provide a permanent exemption, presumably at or close to the $3.5 million level for 2009. Current proposals fix the estate tax rate on the excess above the designated level at 45%. Proposals for the new legislation include limiting the benefits of making lifetime transfers, such as the use of commonly-used partnership or trust arrangements. For those considering lifetime transfers, now may be a good time to consider these techniques, before any new changes limit the tax benefits. On the positive side, there are serious discussions aimed at allowing a surviving spouse to use a predeceased spouse’s unused estate tax exemption (“portability”). Also, with the low interest rate environment and the low valuations on many assets, it can be an optimum time to implement lifetime transfer strategies and take advantage of the annual $13,000 gift tax exclusion. For large charitable gifts, you should consider the current advantages of charitable lead trusts, remainder interests in a personal residence or form, charitable gift annuities, and relinquishing an income interest in a charitable remainder trust.

The economic downturn has encouraged many of us to re-examine our values, goals and priorities, including our estate plans, our philanthropy and our relationships. If you are interested in having us review your estate plan – or creating a new plan for you, contact us at:


This estate planning update was written by Scott Nelson.  Visit our web site to learn more about Scott and our other Lommen Abdo estate planning attorneys.