Some people continue to ask why they need an estate plan, especially since Congress passed the American Taxpayer Relief Act, which made the $5 million federal estate tax exemption permanent. The question is often, “If my estate is under $5 million, why do I need an estate plan or need to be concerned with any tax planning?”
Does “Permanent” Truly Mean Forever?
The issue is that while the changes in the tax law are permanent now, they are only permanent until Congress decides to make changes again. We do not know what the applicable estate tax exemption limit will be until someone dies. As we state often, the purpose of a proper estate plan is to provide flexibility for life changes and changes in the law given that we never know when we are going to die. Over one’s lifetime, the estate tax exemption limits can change numerous times. A proper plan can carry you for several years and for varying circumstances.
Minnesota And Other States
While the federal estate tax exemption limit is still set at $5 million, Minnesota’s state estate tax exemption limit is still at $1 million. There are other states that do not tie their estate tax exemption to the federal limit and you should consult with an attorney in your state to confirm the applicable limit. Many estates do not reach the $5 million exemption but can easily reach a million dollar limit once you calculate the total value of the estate, including the value of real estate, life insurance, retirement accounts, other investments and more. Click here for a guide for the bottom and top tax rates in Minnesota.
Non-tax Matters
There are also all the non-tax reasons why individuals still need an estate plan. Here are a few articles to remind you of some of those reasons:
- Appointing Guardians for Minor Children – We cannot emphasize enough the importance nominating guardians.
- Supplemental Needs Trusts – The needs of children or other relatives may require additional planning to protect assets.
- Preventing Estate Litigation – Family dynamics always play a role in the estate planning process.
- A Case For Health Care Directives – An estate plan does not just deal with what happens when we die but is also important for incapacity issues.
- The “Power of Attorney” in Real Life – A Power of Attorney is another useful tool to plan for incapacity.
We know it can take time for individuals to truly understand the importance of an estate plan and to finally commit to having one drafted – but we’ll just continue to educate you on the significance and hope that one day you will finally take the plunge.
