Early this year, the American Tax Relief Act of 2012 (ATRA) was signed into law, permanently establishing high thresholds for federal estate and gift and generation-skipping transfer tax exemptions. The $5.25 million exemption means that a vast majority of Americans no longer have concerns about paying estate taxes. However, the ATRA does not erase the need for estate planning.
Why you need an estate plan
Your age or level of income and assets does not matter nearly as much as other factors when it comes to estate planning. Even if your wealth accumulated during your lifetime falls below the estate tax exemption level, for the following reasons, it is important to set up an estate plan:
- Asset protection: Whether your primary asset is a home or a family-run business, it is important to plan how your assets will pass onto the next generation or your extended family in the event of an accident or illness. Business succession planning can be an essential part of your estate plan.
- Creating a legacy: By establishing an estate plan, you can decide how and when each of your heirs receives their inheritances. Trusts can be set up for minor children, the income of which may be used for their support until they reach ages you have established for distribution of the trust principle.
- Averting family feuds: Disputes over family inheritances date back to biblical times and, no matter how well family members get along, the death of a loved relative can create a lot of contention between surviving heirs. Emotions run high and minor squabbles over mother's china or brother Bob's gun collection can quickly turn into major disagreements. Candid conversations and specific directions in an estate plan can make the time after a loved one's death less stressful.
- Accommodating special needs: If you have an adult child or aging relative with special needs, an estate plan can ensure that his or her needs will be taken care of once you are unable to. Care must taken to avoid jeopardizing their rights to government aid such a Supplement Security Income and Medicaid.
- Avoiding probate: Keeping your hard-earned assets out of the probate process can save your family money and lots of time.
Consult a lawyer
If you currently do not have an estate plan or have not updated your plan lately, consult an experienced estate planning attorney. A lawyer who is knowledgeable about wills, trusts, asset protection techniques and probate avoidance can provide you with invaluable legal assistance.