You can get your estate in order now
Many people prefer to use trusts, even if their total estates are below the tax limit, because assets held within trusts avoid probate. A trust also allows a maximum amount of control over disposition of those assets. Credit: iStock
Estate attorneys rejoiced when Congress agreed to a deal to address the so-called "fiscal cliff." Finally, after a decade of not knowing what would happen to federal estate taxes, lawmakers settled the matter when The American Taxpayer Relief Act of 2012 became law.
As a reminder, the estate tax exclusion, which is the value of an estate that earns a credit against the tax due (the "basic exclusion amount"), was set to revert to $1 million per person from the 2012 level of $5.12 million, and the top estate tax rate was due to rise to 55 percent from 35 percent. With the enactment of the new law, the basic exclusion amount will permanently remain at $5.12 million and will adjust higher with inflation in the future, and the tax rate will increase to 40 percent.
Clarity on the estate tax means that there's no excuse for failing to prepare or update your estate documents now. Here are the basics that you need to consider:
Your will can itemize where every asset will go, or you can draft a Letter of Instruction, which details your wishes as an attachment to your will. A Letter of Instruction can make it easier to change your mind about distributions without having to redraft the entire will.
If you have minor children, you need to name a guardian for them in your will. If you die intestate (without a will), the state where you reside will determine what happens to your estate and who should raise your kids. That potential alone should prod you to get going with the process.
Many people prefer to use trusts, even if their total estates are below the tax limit, because assets held within trusts avoid probate. A trust also allows a maximum amount of control over disposition of those assets.
Because these are legal documents, it may well be worth the money to hire an estate attorney to draft them. To keep your costs down, make sure you know how you want your assets distributed before you set foot inside the lawyer's office. The whole process often takes only five to 10 hours, a relatively small investment of time considering the importance of the issue.
