On Friday, December 17th, President Obama signed an $858 billion dollar tax compromise. The compromise stopped a rise in numerous income tax rates AKA “the Bush Tax Cuts” from coming back on January 1st and extended unemployment benefits for millions of Americans. One of the side effects of the compromise was a two-year quasi-extension of the federal estate tax. Under Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), there was no estate tax in 2010, but in 2011 the federal estate tax would return with a $1.0 million exemption level and have a tax rate of 55% on the value of the estate above the exemption level. Many Americans believe that with this change there should be no reason to meet with an estate plan or take steps to plan their estate.
Even with the new changes those assumptions are misplaced because estate planning is more than just tax planning it includes life planning. The tax compromise had no impact to non-tax issues that many people fail to realize is part of their estate and needs to be accounted addressed. Those issues include:
- Durable Powers of Attorney – is a legal document that authorizes someone else to act on your behalf in a legal or business matter because of some issue. Generally, that issue is your incapacity to take the matter into your own hands
- Advanced Medical Directive – is a legal document that refers to treatment preferences and the designation of a surrogate decision-maker in the event that a person should become unable to make medical decisions on her or his own behalf.
- Living Will – a legal document that generally goes hand-in-hand with an advanced medical directive. A living will is a written document that specifies what types of medical treatment are desired should the individual become incapacitated.
- Guardianship – if you have minor children or have a child with special needs you need to ensure that someone is appointed to look after them and ensure proper use of any funds that you may leave for that care.
Failing to address a person’s non-tax estate issues could raise problems down the road. For example, if someone is hit by a bus and does not have a living will, medical professionals could take steps to prolong the person’s life should not have been taken. Or, a person could become incapacitated and without a power of attorney, there will be issues in dealing with financial issues because no one has the ability.
While, the tax compromise created a two-year period of tax certainty for everyone, it did not address the noneconomic reasons many clients come through my door. Those reasons are to ensure that their legal affairs are in order to minimize the impact of their death or incapacity has on their loved ones.