We all want to be millionaires, but the truth is most of us don’t have more than $5 million in assets. That’s why when we hear about the tax changes that President Obama and Congress hammered out in the final days of 2010, we don’t think much about how they affect us. Congress passed a $5 million estate tax exemption for 2011 and 2012. This legislation has lulled many wealthy (and not-so-wealthy) individuals into thinking estate planning is no longer necessary, as they consider the primary reason for estate planning to be estate tax avoidance.
But this $5 million dollar tax exemption won’t last for long. In 2013, the estate tax exemption is scheduled to automatically return to a $1 million exemption per individual. But, even if you’re not a “millionaire”, you shouldn’t be complacent about estate planning.
Without developing a complete and proper estate plan, your hard-earned savings will be distributed according to legislative statutory schemes (meaning your money may not go to the people you want it to go to!). If you wish to direct who inherits your hard-earned savings when you pass away, you must take it upon yourself to craft a proper estate plan with the assistance of an experienced estate planning attorney. Failing to do so is not only detrimental to your basic personal right, but also is potentially detrimental to your loved ones’ futures.
Beyond simply directing to whom your savings will go, however, you can also direct how those inheritances may be received. For example, one popular option is to leave a child’s inheritance in a creditor-protected trust. By doing so, if your child were ever to get divorced or be found liable for an automobile accident, the inheritance would be protected from potential creditors (and soon-to-be ex-spouses). Another option protects heirs with disabilities, allowing you to leave them assets for support in a way that does not disqualify them from receiving valuable government assistance.
As you can see with the above examples, there are many potential benefits of estate planning beyond tax avoidance. Don’t let the high estate tax exemption rates scheduled for the rest of 2012 lull you into failing to plan for the futures of your loved ones. Whether your assets are worth millions or a much more modest sum, estate planning should always be “your final answer.”