As my readers know, the federal estate tax was repealed for 2010. The question now is how to plan your estate today?
For the past several years, the federal estate tax has been in flux. The estate tax exemption amount has steadily increased while the tax rate has declined. Throughout these changes, my counsel to my clients has consistently been to 'plan for today and make changes as you may need tomorrow'.
This is still good advice today. As I've spoken with clients this year, I have suggested that they opt for estate plans that provide for the distribution of their estates after their death (outside of probate court) and that designate family members or others to make medical and financial decisions for them when they are not able to do so themselves. Once these objectives are achieved, my suggestion is to wait and see what changes tomorrow may bring to the federal estate tax.
The reason is that we are still in a period of flux: Under current federal law, the estate tax repeal will end on January 1, 2011 and the estate tax will be reinstated with a tax rate of 55% (plus 5% more for larger estates) and an exemption amount of $1 million. Having said that, Congress is expected to act this year to modify the federal estate tax. While it may be difficult to guess what changes they will make, it is most likely that Congress will make some changes. Accordingly, waiting until later this year to address estate tax issues is good counsel.
The bottom line: Yes, you need an estate plan in 2010 to ensure there will be folks there to make medical and financial decisions for you when you cannot and to provide for the distribution of your assets outside of probate to your chosen heirs. When it comes to estate taxes, however, the best course of action now is 'plan for today and make changes as you may need tomorrow'.
