The recent American Taxpayer Relief Act (effective 1/1/2013) could have been named the Great American Estate Planning Simplification Act. All but the very wealthy could call January 1, 2013, Federal Estate Tax Liberation Day. In other words, all but the very wealthy will be able to rely on simple Wills (Wills that don’t include complicated tax and trust provisions) unless one of the exceptions listed below applies to you.
Exceptions:
(1) You live in a state that still has an estate tax. Connecticut has an estate tax with an “exemption” of $2,000,000 and New York has an estate tax with an exemption of $1,000,000.
(2) Special problems plague your beneficiaries: creditor problems; divorces and troubled marriages; poor judgment; gambling habits; drug dependence; health problems; special needs; and poor financial training, financial skills or lack of interest in financial matters.
(3) A need to plan for long term care, whether at home or in a nursing home, for a surviving spouse or other beneficiary.
(4) Your primary beneficiary is your current spouse from a second marriage and you want to provide for the children of a previous marriage.
(5) Your children or other beneficiaries are too young to handle an inheritance or have special needs to consider.
(6) You have a business which will require management if it is to provide appropriately for your beneficiaries after your death.
(7) You are concerned about the management of your assets for you and your family in the event of your incapacity.
(8) You want to disinherit an undeserving relative or you would like to include provisions in your planning documents that your survivors might consider controversial.
(9) You have difficult-to-manage assets (for example, a closely held business, rental properties, collections of art, antiques and other creative works, weapons, etc.).
(10) You are concerned that your surviving spouse’s remarriage after your death will result in a diversion of your assets away from your children or other intended beneficiaries.
(11) You may be wealthier (for estate tax purposes) than you think you are. To determine the size of your estate, start by counting everything that will pass to others at the time of your death: home, retirement accounts, annuities, IRAs, life insurance, bank accounts, stocks and bonds—everything. Is it over $5,250,000? If so the Great American Estate Planning Simplification Act probably does not apply to you.
(12) You are in a same-sex or other “nontraditional” committed relationship (married or otherwise).
(13) Your estate is increasing and there is a strong possibility that, as a result of your efforts, luck, inflation, additional life insurance, or a combination of such factors, you will join the ranks of the “very wealthy”. In that case, it may be important for your documents to include all the existing tools for effective “post mortem” tax planning. See: It’s Not Too Late (Fixing Your Estate Plan After Your Death).
(14) You want to provide for your grandchildren by bypassing your children to some extent.
(15) You want to provide benefits for your grandchildren in amounts that may exceed one generation skipping tax exemption (currently $5,250,000).
(16) Although disadvantages of probate are often overstated, you nevertheless wish to arrange your affairs to avoid probate.
(17) Unique facts reveal unique problems that often require unique (and perhaps not simple) solutions.
With the above exceptions (and probably others I have not thought of), a simple Will may be all you need.
For those of you who currently have in place more complicated, tax sensitive documents, it may be very important for you immediately to change to something simpler. If the tax provisions in your Will are based on the federal estate tax exemption, failure to change to a simpler Will may result in unnecessary Connecticut or New York estate tax (more than $250,000 for Connecticut residents and more than $400,000 for New York residents) at the time of your death. For more details, see our companion post on this blog here: “New Risks of Unnecessary State Estate Taxes.”
For an excellent summary of the changes resulting from the Act, go to this post prepared by Clearwater, Florida, Attorney Alan Gassmann: Summary of the American Taxpayer Relief Act of 2012.
Posted on 1/13/2012 by Richard S. Land, Member, Chipman, Mazzucco, Land & Pennarola, LLC.
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