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The American Taxpayer Relief Act of 2012: Why You Still Need to Plan Your Estate

As a result of the American Taxpayer Relief Act of 2012 (“ATRA”), the federal unified gift and estate exclusion amount and the generation-skipping transfer tax exemption were made “permanent” at $5 million, annually adjusted for inflation after 2011 ($5,340,000 in 2014). Even those who expect that their estates will result in no federal estate taxes should be aware of the benefits of estate planning. Significantly, ATRA does not affect the following basic estate planning documents that will give you greater control over the disposition of your estate:

  • Last Will and Testament.  If you fail to leave a valid Last Will and Testament behind, then applicable state intestacy laws will control the distribution of your assets. You can also appoint a guardian for your minor children by will and appoint an executor to handle your estate. You can also consider the use of a trust and name a trustee to administer the trust assets.
  • Health Care Representative and Health Care Directive. You can make your health care choices known in a health care directive. Your chosen health care representative will be authorized to make health care decisions on your behalf in the event of incapacity. If you do not have a health care directive in place, a court hearing to determine guardianship may be held and your health care wishes may not be honored.
  • Power of Attorney. A financial durable power of attorney is a document that allows you to give an individual the power to manage your financial affairs in the event of incapacity. A financial durable power of attorney can either be immediately effective or can provide that the named agent cannot operate on your behalf until a certain event occurs.

You should also consider the possibility that your estate may be exposed to state estate taxes even if no federal estate tax is due. For example, an estate may be subject to New Jersey estate tax since the state’s current $675,000 exclusion amount is significantly lower than the federal exclusion amount.

In addition, the New York exclusion amount should be the Federal exclusion amount (adjusted for inflation) only for decedents dying on or after January 1, 2019. Newly enacted legislation gradually increases New York’s exclusion amount for some estates as follows:

 

For decedents dying on or after: Exclusion amount:
4/1/2014 and before 4/1/2015 $2,062,500
4/1/2015 and before 4/1/2016 $3,125,000
4/1/2016 and before 4/1/2017 $4,187,500
4/1/2017 and before 1/1/2019 $5,250,000

However, New York’s exclusion amount is reduced as applied to estates valued at between 100% and 105% of the exclusion amount and eliminated for taxable estates exceeding 105% of the exclusion amount.

Most importantly, a successful estate plan is one that is tailored to your life. Accordingly, whether it is a change in family circumstances or a change in the law, you should review and update your estate plan as necessary.

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