Estate Planning: Where Things Stand as We Move into 2011

As 2010 draws to an end, uncertainty surrounding the end of the current federal estate tax repeal leaves many people, and not just the “wealthy”, questioning what to do regarding their estate plan. The 2010 repeal represents an historical threshold of the first time in over 100 years that there has been no federal estate tax, although there is continued talk and ongoing predictions as to what our Administration has in hand for 2011 and the federal estate tax. Without any solid legislative action we are, unfortunately, faced with no real answers. One thing we do know is that no one wants to pay a tax that they can potentially avoid through proactive planning.

The predictions are many, and the most welcomed by the masses is the return of the $3.5 million exemption that was in effect in 2009 immediately preceding the 2010 repeal. However, should no action be taken on Capitol Hill by the end of the year, we will role into 2011 with a $1 million estate tax exemption. Under this scenario, it is not hard to envision the estate of a hard working, savings-minded person being affected. For example, a person dying with a $300,000 life insurance policy, real estate worth $300,000 and retirement and other investments worth $600,000 yields an overall taxable estate of $1.2 million of which $200,000 will be subject to federal estate tax. Given this example, it is not hard to recognize that moving into 2011 brings the potential for many estates to be burdened with a federal estate tax payment. Under the popularly predicted $3.5 million exemption amount, fewer estates would be affected by the return of the federal estate tax, but proactive planning, nonetheless, should be considered.

There is also talk of passing a law that would retroactively reinstate a federal estate exemption effective January 1, 2010. This could have a significant effect on the estates of persons who passed away in 2010 or made modifications to their estate planning documents which implemented estate planning strategies based on the 2010 expiration of the estate tax. It is proposed that should a retroactive reinstatement of the federal estate tax take place, such retroactivity will be challenged as to its constitutionality. Any such actions could result in more delays with regard to the establishment and/or confirmation of the federal estate tax exemption.

However, regardless of what the speculated 2011 exemption amount turns out to be or the effect of a possible retroactive law, some planning considerations are required. At a minimum, the following should take place before year-end:Conduct a thorough review of your current Last Will and Testament.

  • Conduct a reassessment of your overall estate assets – what do you own?
  • Assess how your assets are titled, whether individually or jointly with someone else.
  • Confirm the named beneficiary of your beneficiary designated assets including life insurance, annuities, IRAs and 401(k), to name a few.
  • Calculate the value of your assets which may have increased or decreased significantly since you last made an assessment of your net worth. As illustrated above, a differential of a couple hundred thousand dollars or less could result in federal estate tax becoming due.
  • Review the terms of any loans that you have outstanding. Is your payment maturity date drawing near? Is your interest rate competitive with the current rates, and if not, is refinancing an option? 

There is no doubt that uncertainty looms as we approach 2011, but planning is something that is not uncertain, but calculated, regardless of its nature. Although often put off due to more pressing matters, estate planning can have a significant impact on your estate and your lifelong savings. Through careful estate planning, you can preserve your assets for many generations to come as well as give yourself the peace of mind that you’ve done everything possible to secure the future of you and your loved ones.

If you have any questions concerning this topic, please contact Susan Confair in the Estate Planning Practice Group at SConfair@ReagerAdlerPC.com, or 717-763-1383.


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Harrisburg Magazine Readers' Choice 2011