Estate planning is not something that takes place in a vacuum, and because many people procrastinate about getting started in the first place they can sometimes neglect necessary updates. Some of the changes that take place that can call for an estate plan revision are personal in nature. Your original estate plan is going to be constructed based on the circumstances of your life as they existed at that time. As we all know, things change and some of these changes are quite unexpected. We have additions and subtractions to and from our families, and marital statuses are prone to change as well. And of course your assets may grow and evolve into different forms, and this can require alterations to your existing plan.
In addition to dynamic personal circumstances, there are legislative changes taking place on an ongoing basis that can impact your estate planning efforts. One of these that is quite profound is the line that is drawn in the sand that we call the estate tax exclusion. If the overall value of your estate is within this exempt amount you’re not subject to the estate tax. But if it is not, your heirs may be faced with a federal tax bill that could consume anywhere from 35% to 55% of their inheritances.
To make the point, let’s take a brief stroll down memory lane. In 2008 the estate tax exclusion was $2 million, so only the portion of an estate that exceeded this amount was subject to the estate tax which was carrying a 45% rate at the time. In 2009 the estate tax exclusion went up to $3.5 million and the rate remained constant at 45%. So if an individual died in 2008 with $3.5 million in assets, $1.5 million of that would have been taxed at 45% and his or her heirs would have been presented with a $675,000 tax bill. But if the same person died in 2009 with the same $3.5 million the surviving family would have no federal estate tax liability at all.
As things stand at the present time the estate tax exclusion is $5 million, but in 2013 it is scheduled to be reduced to just $1 million. However, we may well see legislation passed in the meantime that alters the laws as they stand today. Without question, the best way to address these constant and confusing changes is with the assistance of an experienced estate planning attorney.