Estate Planning Tools to Account for the Fiscal Cliff

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As you may have heard, Congress’s last minute agreement to avoid the so-called “fiscal cliff” included some provisions that bring long awaited stability to the federal estate tax laws. Since 2001, the future of the federal estate tax has been in limbo. This made it difficult for people to make firm and confident decisions about their estate planning. Now that the laws are at “permanent” (relatively speaking), people are asking, “What does it mean for me, and do I have to change my will or trust?”

Well, as in most things, it depends. As a starting point, if you are worried about paying federal estate taxes when you, or your surviving spouse, dies—unless you have a large estate, you can stop worrying. Under the new law, which makes the law in place during 2011 and 2012 permanent, individuals with taxable estates worth no more than $5.12 million, and married couples with a combined estate of no more than $10.24 million, can give that amount to the people they choose without paying federal estate taxes upon their passing.

What’s even better, if you are married, you don’t even have to do advanced planning to make sure you and your spouse use the full amount of the exemption available. If your spouse passes before you, and doesn’t use part of their exemption, you can just tack it on to your exemption when you pass on.

State Estate Taxes and Other Issues

But, if you live in a state that has estate tax laws of its own, you want to make sure that your will or trust protects you and your family from state estate tax liability. As of 2013, 16 states plus the District of Columbia impose state estate taxes—and the amounts exempt from estate tax vary from state to state.*

Another reason people create trusts with tax-savings provisions is because those provisions have other benefits. For example, some couples create trusts that set aside the property held by the first person to die in such a way that the survivor can use the property, but can’t change who gets the property when the survivor dies. That trust has estate tax benefits, because the deceased person’s property is not included in the survivor’s taxable estate when he or she dies. But some people chose this structure for nontax reasons. They just want to make sure that if they pass away first, their property goes to the people and charities they selected.

Now that the country’s fiscal picture is a little more certain, it might be a good idea to seek the advice of an estate planning professional to ensure your current estate planning fits your needs.

If you have questions about your will or trust following the recent tax law changes, you can consult with your LegalZoom legal plan attorney as part of your membership. Sign in to your account and visit the Member Center to schedule a consultation. Nonmembers can learn more here.

*The following states charge estate taxes on estates worth more than the amount listed next to that state:
Connecticut                          $2 million
Delaware                              $3.5 million
District of Columbia            $1 million
Hawaii                                   $3.5 million
Illinois                                    $2 million
Maine                                     $1 million
Maryland                               $1 million
Massachusetts                     $1 million
Minnesota                             $1 million
New Jersey                           $675,000
New York                               $1 million
North Carolina                     $5 million
Oregon                                  $1 million
Rhode Island                        $859,350
**Tennessee                        $1 million
Vermont                                $2.75 million
Washington                          $2 million
**Tennessee calls its tax an inheritance tax, but it is a tax based on the value of the estate as a whole.