Tax and estate planning issues

Estate tax exemption

For 2009, the estate tax exemption is $3,500,000.  If the value of your estate is close to or exceeds $3,500,000, you should have a formal estate plan.  With proper planning, estate taxes could be significantly reduced and in some cases completely eliminated. In 2010, the exemption is unlimited (no estate tax), and in 2011, the exemption goes back to $1,000,000. Congess is expected  to extent the $3,500,000 exemption into 2010 sometime in December 2009. Stay tuned for updates for 2011.


Even if you do not need a formal estate plan, you should still have a will to allow you to designate who will receive your assets after your death.  In your will you name an executor, the person who will be responsible to handle your financial matters and see that the terms of your will are properly carried out.  If you have minor children, your will is the appropriate place to appoint a guardian for them, in the event of your death.  You can also provide instructions for the handling of financial assets for your children and/or other beneficiaries.  In all cases, your will should be prepared by a qualified attorney.


Revocable living trusts

Revocable living trusts have many uses, the two most popular are estate tax savings and avoiding your assets being probated upon your death.  If you have a revocable living trust, I suggest that you carefully consider the following:


• if your trust is more than four years old, or if you have had any major changes in your life since your last update, you should have your attorney review the trust and determine if any provisions should be updated or revise to best provide for your current situation.


• the trust only covers those assets that are in the trust. Accordingly, you should review the title on all assets to determine that they are titled in a manner that will properly fulfill your estate plan.


• not all assets should be in the trust, such as your IRA accounts. Consult with your attorney before changing the title on any assets.


• if your trust was prepared by a sales organization that mass market trusts, I strongly urge you to have your trust reviewed by a qualified attorney. Mass market trusts may create significant problems after your death because they may be written for a general situation and not for the specific needs of the individual.


Community property

 For married couples, there can be significant tax benefits to holding assets as community property instead of joint tenancy, as long as you live in a community property state, like California.  You can also get the benefits of community property classification by having a community property agreement. However, there are also significant legal issues in holding assets as community property, Therefore, I strongly advise you to consult with a qualified attorney before changing title on any asset.


Named beneficiaries on life insurance and retirement accounts

Do you know who is named as the primary beneficiary of your life insurance policies and your retirement accounts (IRA, 401(k), pension plan, deferred compensation, etc.)?  Have you named a contingent beneficiary in the event your primary beneficiary pre-deceases you? Oftentimes, personal circumstances change but we fail to update such things as beneficiary designations.  Therefore, I strongly suggest you review your current beneficiary designations on all life insurance and retirement accounts.


The issues discussed above are not exhaustive, but contain only information for your further consideration and discussion with your attorney and tax professional.