Estate-planning attorney and guest contributor Rania Combs discusses why estate planning is important no matter the size of your estate.
Last December, the wealthiest 2 percent of Americans breathed a collective sigh of relief. The estate tax, which was temporarily repealed in 2010 was scheduled to return on January 1, 2011, and would have subjected estates valued at over $1 million with an estate tax of 55 percent.
But under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed by President Obama on December 17, 2010, those with estates valued at less than $5 million can pass their assets to their beneficiaries without any estate tax liability. This means that for more than 99 percent of Americans, estate taxes will not be an issue, at least until December 31, 2012, when the new law is scheduled to expire.
But does the new law make the need for estate planning obsolete? Do Americans with less than $5 million in assets even need a will? Below are some of the reasons why estate planning is important for those without taxable estates.
The Benefits of Estate Planning
Beyond minimizing estate tax liability, estate planning allows you to make many important decisions that you are in the best position to make, such as:?
1. Deciding who will receive your assets when you die. Without a will, your assets will be distributed according to a statutory distribution scheme, which may conflict with your wishes. For example, you may want a dear friend or charity to share in your estate, or leave a larger portion of your estate to provide for a child with special needs. That would not be possible without a will.
2. Deciding who should raise your minor children if you are your spouse both die. You know your children better than anyone else, and are the best person to choose a guardian for them. However without guidance from you, that decision will be left in the hands of a judge who doesn’t know you, your children, or what’s important to you.
3. Designating a guardian for your children in the event you are incapacitated but have not died. Without any guidance from you, a judge who doesn’t know you or your kids will make that decision in your place.
4. Deciding how your assets will be distributed to you minor children when you die. Direct bequests to your minor children of more than a nominal amount of money may require a probate court to appoint a guardian of the estate to oversee management of it. This is typically an expensive and cumbersome process that can be easily avoided by establishing a trust that would be funded when you die and managed by a trustee you choose.
5. Deciding who will manage the assets you leave behind for your children. If you have not named someone to manage the assets you leave behind, a judge who doesn’t know anything about your financial values will make that decision in your place.
6. Deciding when your children will have access to the assets you leave them. If a guardianship is created, your children will have access to the assets when they become adults. Imagine what you would have done with $10,000, $100,000 or more when you were 18. Most likely, you would not have had the skill or foresight to manage it. With estate planning, you can make plans to delay distributions to your children, or even stagger distributions over a number of years.
7. Deciding whether to authorize a trusted friend or family member to engage in specified business, financial or legal transactions on your behalf if you are unable to manage your own affairs, such as if you become incapacitated.
8. Deciding whether to authorize a trusted friend or family member to make medical decisions for you if you are incapacitated and unable to make those decisions for yourself.
9. Deciding whether to authorize a trusted friend or family member to receive access to protected health care information. If a medical power of attorney does not specifically authorize transmission of your protected health information as required under HIPAA, your health care provider may err on the side of caution and refuse to share this information with your agent, who may need it to make an informed medical decision on your behalf.
10. Deciding whether you would like your physicians to use artificial methods to extend your life in the event you are diagnosed with a terminal or irreversible condition.
Minimizing your estate tax liability is important, but estate planning is about so much more than that. If you want to make sure your wishes are followed and your family is protected in the event of your incapacity or death, you need an estate plan.
Rania Combs is an attorney with a completely web-based law firm that helps Texans prepare their wills, trusts and estate plans online without the usual overhead. For more information, visit Texas Wills and Trusts Online.