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Eastman & Smith Alert - Has Congress Made Estate Planning Unnecessary?

2/1/11

The tax bill passed by Congress in December 2010 increased the estate tax exemption to $5,000,000 for two years and introduced portability of the exemption for married couples. As a result, individuals may be tempted to conclude that they do not need estate planning, at least not yet.

However, even from a tax standpoint, the 2010 changes are not a panacea, for the following reasons:

the changes are for 2011 and 2012 only and may or may not be extended beyond that,
the portable exemption does not shelter any growth of assets between the first and second deaths, and
the Ohio exemption (which is only $338,333) is not portable, and wasting the exemption of the first spouse to die can result in $25,000 or more in Ohio estate tax at the second death.

Even more important for most Americans, however, is that proper estate planning can accomplish many non-tax objectives, including

insuring that the desired individuals will inherit, regardless of the order in which the beneficiaries die, or perhaps regardless of the remarriage of a surviving spouse,
avoiding the need for a court-established and court-supervised guardianship that would otherwise be required when assets are left to a minor child,
protecting against the misuse of an inheritance by a beneficiary who is too young and/or immature,
preserving government benefits for a special needs child,
avoiding probate in order to reduce legal fees and provide privacy, and, perhaps most important of all,
avoiding family conflict.

In addition, proper estate planning can provide for financial decision-making, without the need for court involvement, in the event of disability (through a durable power of attorney), and can also provide for medical decision-making if needed (through a health care power of attorney and a living will).

Given the above, estate planning is not just for the wealthy -- it is needed by anyone who has assets and wants them to be put to the best use in the event of death or disability.