Spring 2001
Spring 2002
-Special Report & Legal Bulletin
This bulletin covers legislative developments
-Estate Planning
ESTATE & FINANCIAL PLANNING IN AN UNCERTAIN WORLD
Since September 11 we have all heard how the world has changed and how everything is different. The steady stream of news stories seems endless yet every day brings new revelations of the ongoing effects terrorism will have on all Americans.
While we have heard many stories of the remarkable heroism of the New York City emergency workers, we cannot help to think as well of the thousands of men and women who were simply going about their daily lives on September 11th, working, caring for their families, paying taxes and trying to create a better life for their children and their country. Although completely innocent, at 9:00 a.m. EST their lives came to an end.
Among other things, this great tragedy again points out how important it is for all of us to keep our financial planning house in order. While most of us live as though there will be no tomorrow, in reality, we never know when today will be our day.
LAST WILL AND TESTAMENT. Anyone who has children or other dependents must have a will. Simple or complicated, you simply must have one. It is important that you name the person you want as your executor as well as the person you want to serve as guardian for your children. Where your will is kept is important, but it is more important that your children and executor know where to find it. A bank box or your sock drawer, it really does not matter so long as your trusted advisors and family know where to find the will in times of emergency.
INSURANCE POLICIES. Make sure the beneficiaries on your insurance policies and retirement accounts are kept up to date. This attention to detail is vital to the successful implementation of your financial plan.
DURABLE POWER OF ATTORNEY. We have discussed this item in many newsletters because it is just that important. Should you be alive but unable to handle your affairs, you basically only have two choices--either a court-ordered guardianship or a power of attorney. Establishing a durable power of attorney costs very little and takes very little time. With it, you are able to keep all of your financial and healthcare decisions within your family.
LIVING WILL. We sometimes read of situations where because of injury or disease, a person shows no signs of life and is being kept alive by medical life support systems. Most of us do not relish the idea of continuing in such a situation if there is no hope of recovery and wish to spare our family years of grief and medical bills. It is for this reason a living will directing a close friend or family member to terminate life support systems when that time has come is an absolute necessity.
No one knows what tomorrow may bring. We, in fact, have very little control over our surroundings or life itself. However, we can plan for the certainty that life will end and do so in such a way that is kind to our families and does its best possible to preserve our hard-earned assets.
THE NEW TAX ACT AND HOW IT AFFECTS YOU
On a more upbeat note, the 2001 Tax Relief Act has made dramatic changes in gift and estate taxation. While certainly being of assistance to many, the new legislation also makes planning more complicated. Contrary to all of the hype from the news media, the estate tax was not eliminated. This tax was repealed for those dying in the year 2010 but comes back in the year 2011, both difficult events to work into an estate plan. These changes are but another reason why it is important to continually evaluate your estate plan. This is the phase out schedule for the amount which can pass free of estate tax as well as the tax rate on any assets in excess of the exempt amount.
| Year | Top Estate Tax Rate | Exemption Amount |
| 2002 | 50% | $ 1 million |
| 2003 | 49% | $ 1 million |
| 2004 | 48% | $ 1.5 million |
| 2005 | 47% | $ 1.5 million |
| 2006 | 46% | $ 2 million |
| 2007 | 45% | $ 2 million |
| 2008 | 45% | $ 12 million |
| 2009 | 45% | $ 3.5 million |
| 2010 | repealed | all |
| 2011 | 55% | $ 1 million* |
(*if no new legislation is passed)
GIFT TAX. Surprisingly, the law did not repeal the gift tax. Unlike the estate tax exemption which will continue to go up, the gift tax exemption increases to $1 million in the year 2002 but then stays at that level indefinitely, or at least until Congress acts again.
CONCLUSION
The Tax Relief Act of 2001 created new opportunities to save tax. However, the estate tax has not been totally repealed and has become more complicated. These changes make estate planning even more important. That said, most estate planning is driven by reasons other than tax issues, such as protecting your assets from probate, ensuring assets are passed to your heirs, preserving a family farm or business, and making gifts to charities--all important aspects that have nothing to do with the most recent Washington politics. These changes mean, once again, it is an absolute necessity to reevaluate your estate plan from time to time to ensure your last wishes will be enforced.
