Flexibility and Control are Important

Given the current politically charged climate and the uncertainty that exists with the federal estate tax, current estate plans should be flexible.  Current plans should be flexible to allow the survivor/s the ability to do tax planning or not, as necessary.  There are several key provisions in the Internal Revenue Code that permit a survivor to make elections and choices that can have a substantial beneficial impact on the assets from a tax perspective.  Plans should be drawn up to permit for these elections and choices to be part of the plan.

In a nutshell, if one’s estate is too big, it will be subject to the federal estate tax.  The problem now is we are not certain exactly what constitutes “too big”.   The current exemption amount is 2 million per person.  Now, this includes the death benefit on life insurance and retirement accounts.  This exemption will be 1 million in 2011 if the law is not changed.  So what is one to do?  The short answer is to make sure that your documents are flexible to account for changes in circumstances and changes in the law.  Often, building in to a plan for a married couple, the ability to disclaim assets and direct inherited assets to an estate tax free shelter trust is the answer.  You see, if assets are left in a credit shelter trust (or a “bypass trust”), they can avoid estate tax even though they are available to the survivor to maintain their accustomed manner of living.  This can help protect your children’s ultimate inheritance.  Without it, the government may be entitled to a large amount before they inherit.

The next common objective clients often have is “control”.  If an estate plan is not drawn up to ensure family control is paramount, then the court/s may have control of your assets.  When courts are involved, legal fees and administrative expenses increase.  Accordingly, most people opt for a revocable trust to dispose of their assets.  This way, a family member can be the trustee with little or no court oversight.  Of course, the family member trustee has duties to the beneficiaries with regard to accountability and the like, but the prospect of unnecessary court control is avoided.

Contributed by:

Mark F. Winn

Attorney at Law, PLLC