Recently, President Obama made a tax deal with the Republicans to extend the Bush income tax cuts for two years. Along with the extension, the federal estate tax issue was also addressed. As most people know, the federal estate tax in 2009 was 45 percent of anything exceeding $3.5 million.
In 2010, this tax was repealed and families, like the famous Steinbrenners, saved more than $500 million dollars in taxes, as their father, George, happened to die that year. The estate tax was supposed to come back to a tax rate of 55 percent on anything exceeding $1 million.
The deal Obama made with Republican lawmakers lowers the tax rate to 35 percent on anything exceeding $5 million for an individual and $10 million for a married couple. The law change also unifies the estate and gift tax exemptions, allowing generous people to give away a lot more money without paying tax. What this means is that less than 1 percent of the population will end up paying any federal estate tax.
As the robot on the old television show “Lost in Space” used to say, “Danger, Will Robinson!” What The Retirement Guys see as a danger here is being lulled into a false sense of security.
As an estate planning attorney, Mark first saw it back in the ’80s and ’90s when the federal estate tax exemption was first $600,000, then $750,000, then $1 million, then $2 million and finally $3.5 million. At these exemption levels, many folks out there thought they did not need to do any estate planning. If they were focusing only on estate taxes, perhaps they were correct. Now with the exemption amounts at $5 million to $10 million, many people may think the same thing.
Unfortunately, there are more issues to estate planning than just estate taxes. As financial professionals, it is good to stay up to date on these issues and talk with our clients about how these concerns may affect their individual situation. Here are a few of them:
1) Plan of distribution: Talk with clients and think through what they want to happen with their assets when they die. Who do they want to get their house, money and the grandfather clock? As a financial professional you need to make sure financial accounts correctly address those wishes. Have an attorney help with other assets.