Estate planning is essential, regardless of what Congress does

Since Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, the federal estate tax has been highly confusing to most people. While that law provided tax relief, it also increased uncertainty over how estates will be taxed in the future.

For example, the law mandated changes in key provisions of the federal estate tax during every year from 2002 through 2009. Then, it provided for a total repeal of the estate tax for one year only, in 2010. Under "sunset" provisions of the 2001 law, virtually all estate tax changes are to be unwound after 2010.

Of course, since 2001 the pressure has intensified on Congress to make further changes that will clarify the long-term future of the estate tax. President George W. Bush has argued for totally repealing the federal estate tax, while other leaders say the tax should touch only mega-wealthy American families.

As these issues are being debated and resolved, it's important to keep a basic idea in mind: Whatever happens to the federal estate tax, estate planning will always be important and valuable. This article explains the advantages that this planning process can help individuals and families achieve, without regard to estate tax complexity.

THE LIMITS OF A WILL

Some people think a will is enough to insure their wishes and goals will be honored after they are gone. Writing a will often can be an important part of estate planning, but it is only one step. An "estate" is created at the moment of death as a vehicle for settling affairs of the deceased. After the death of a will's maker or testator, the document is entered into probate court where its contents become public. So, the first shortcoming of relying on a will is the loss of privacy.

Since assets passing through probate also can be vulnerable to delays, challenges and court costs, wills may not always be the best way to provide for heirs. For example, a common mistake made in writing wills is to specify how assets are to be distributed, but not to give clear instructions for paying the deceased's debts and estate costs, including any state inheritance taxes due. Even if the will specifies assets to be used in paying debts and costs, it is not always possible for the estate to access cash right away. In some cases, assets of the deceased are frozen and not released by the probate court for some time.

A key goal of sound estate planning is to carry out the deceased's wishes and pay off obligations through the most effective means possible. Several ways are available to avoid the public disclosures of probate, including passing assets through life insurance, annuities and retirement plans. Trusts can be valuable in providing both privacy and continuing management and distribution of assets.

POSSIBLE ESTATE PLANNING GOALS

A checklist of common estate planning goals is below. In this case all goals relating to federal estate taxes have been deleted, even though planning for this tax can be a high priority as long as the tax exists.

* Making sure your surviving spouse has enough money to live comfortably.

* Protecting a surviving spouse and other heirs from the demands of managing money or operating a business.

* Making sure all debts and obligations are paid with funds that are readily available to the estate.

* Specifying assets to be given to a favorite charity, with optimum income tax benefits.

* Making sure that any retirement plan benefits left to heirs receive favorable income tax consequences.

* Disposing of your real estate, collectibles or business property in the most effective manner.

* Making plans for a special-needs child or grandchild; or earmarking funds to be used for the benefit of grandchildren who may one day need money for college, whether they are alive or not yet born.

* Arranging for a partner or key employee or another person to buy out your business interest, by paying "cash on the barrel" to your heirs.

* Making gifts to family members or charities during your lifetime in an efficient way.

* Making sure a particular financial goal - such as helping children purchase their first home - is completed, whether you live or not.

Are any of these goals among your priorities? If so, it could be wise to take estate planning seriously, even if Congress continues to make changes in the federal estate tax.

Copyright Westfair Communications Oct 8, 2007
Provided by ProQuest Information and Learning Company. All rights Reserved