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The seemingly never-ending battle to repeal or reduce the estate tax may
continue to frustrate and stall your estate planning decision. How can you make
an informed decision when the estate, gift, and generation-skipping tax laws
change so frequently? Last year, each individual was entitled to exempt $1.5
million from estate taxation. This year, the exemption rose to $2 million and by
2009 the exemption equivalent amount will be $3.5 million. If all goes according
to current plan, there will be an unlimited exemption by 2010. Bill Gates could
die in 2010 and not pay a dime in estate tax! Yet, by 2011, under current law,
the exemption equivalent amount reverts back to $1 million and untold numbers of
families on Hilton Head Island, alone, will be affected.
Confused yet? You
should be. Having trouble making sense of all the numbers and growing tired of
hearing about all the “proposed” changes being considered? Who can blame you?
But that’s just it. While the current estate, gift, and generation-skipping
tax laws present considerable uncertainty, the law is clear enough to make
planning appropriate. Even if the estate tax is repealed – which is unlikely –
the truth of the matter is that the estate tax is the least important part of
estate planning. At some law firms, in addition to a law degree, every attorney
in the estate, tax, and probate division has an LL.M. (Master in Laws) in either
estate planning or taxation. Planning your estate under the current law, and in
light of the proposed changes to the estate, gift, and generation-skipping tax
laws, is precisely what these individuals are trained to do.
The single most
important reason to have an estate plan is to have a vehicle to protect, control
and distribute your estate, regardless of the ever-changing tax laws. Does
anyone really want the ex-husband of their only daughter to get half of her
inheritance? Who wants to sell their home to satisfy creditors? After working
for 30, 40 or 50 years, does anyone really want a 15-year-old teenager, a child
or grandchild, to be financially independent? Consider the trappings of wealth
combined with immaturity, inexperience and innocence. What if your child has
special needs? Who will care for them and protect them? How about too little,
too late?
Furthermore, who really wants to think about giving away
everything they own? The perfect island retirement home that took two years to
plan and another two years to build, the classic mint-conditioned cherry red
1965 GT Ford Mustang, a well-diversified and managed portfolio that outpaces
every market, the pie safe or antique silver set. It took a lifetime to
accumulate these things. Would anyone truly appreciate, respect and care for all
you have accumulated?
Nonetheless, something has to be done. Keeping in mind
the difficulty of considering one’s own mortality, there are several estate and
tax planning tools available to minimize and, in some cases, reduce estate
taxation altogether. By way of example, traditional planning usually results in
the funding of a family trust at death with the maximum amount that can pass
outright free of federal estate tax. As the exemption from the federal estate
tax increases (or even becomes unlimited) the family trust will also increase.
The family trust can in turn be designed with myriad clauses specifically
tailored to your wishes in order to protect your assets during a time of
uncertainty, to control the disposition of your assets and to provide for your
loved ones.
If you can get past the idea of not living forever, of having to
part ways with your personal possessions, especially if you live in ‘heaven on
earth’ here in the Lowcountry, and can address the inherent problem of to whom
and how to distribute it all, then you are ready to “beat” the estate tax
system.
The way it looks now, there will always be some form of death tax,
but the longer you wait to confront it, the worse it will be for you and your
family. How bad can it get without a well thought out estate plan, you ask? You
might prefer a root canal.
Peter J. Strauss is an associate attorney with
the Hilton Head Island-based law firm Novit & Scarminach, P.A. Novit &
Scarminach, P.A. engages in general practice including real estate, corporate
law, business transactions, estate planning and probate, community association
and condominium law and development and regulatory law.The opinions expressed
are solely those of the author and do not necessarily reflect those from any
other source.
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