New Year - New Resolutions

I always enjoy the turn of the year. It is not only a time to reflect on the past, but also an opportunity to think about the future. Many people enter the new year with one or more "resolutions," most often involving some type of weight-loss program. I want to offer an easier and more significant resolution for your consideration (easier and more important-how can you argue with that?).

I recommend that you take the new year to ensure that your financial and legal house is in order. All too often financial and legal matters are not addressed until there is an emergency or a real need and by that time, it is too late to adequately address these matters. You may want to consider addressing them now, so that if a need ever arises, you and your family are protected.

The following is an example of some steps you can address this year:

Seven Steps to Protect Your Family

Action Item

1. Sign a Will and/or Trust to direct the disposition of property at death

2. Obtain a Durable Power of Attorney

3. Obtain an Advance Health Care Directive

4. Document Funeral/ Burial Wishes

5. Create a Personal Record Book, containing such items as a list of assets, document locations and emergency contacts

6. Conduct a long-term care and life insurance assessment: either a self-assessment or speak with an insurance professional.

7. Leave a lasting personal legacy for your friends and family, e.g., a letter or ethical will

A Christmas Gift from Congress

The status of the Federal Estate Tax (affectionately known to some as the “Death Tax”) has been in a state of uncertainty for the last several years. In 2009 the tax existed and included an exempt amount of $3.5 million, meaning if the total value of your estate was less than the tax exempt amount, you did not have to be concerned with the tax. On January 1, 2010 the estate tax was repealed and we have operated for an entire year without an estate tax. On January 1, 2011 the tax was scheduled to return to its 2001 levels, which would include an exempt amount of only $1 million.

Congress and the President prevented a return to the 2001 estate tax levels when the President signed new tax legislation on December 17, 2010. This law provides very generous provisions for taxpayers in relation to the estate tax and removes the applicability of the tax for most individuals. Some highlights include:

-The tax exempt amount is now $5 million per individual. This means that together a couple can pass $10 million to their beneficiaries without paying an estate tax.

-Where there will be an estate tax, the maximum rate is 35%.

-The tax exempt amount is now “portable.” Meaning, if a spouse dies and does not use all of his or her exemption, the surviving spouse can claim the remainder. Under the old law, a couple would need to use tax-free or credit shelter trusts as a part of their estate plans in order to take advantage of both tax-exempt amounts.

-The Estate Tax and the Gift Tax are once again “unified,” meaning the exemption amounts are the same. Even when the tax-exempt amount was $3.5 million, the exempt amount for lifetime gifts was capped at $1 million. The exempt amount for lifetime giving is now $5 million.

This new law provides an incredible benefit for families. One should note that these new provisions are set to expire in two years, so either Congress will make these changes permanent or we will be facing the same situation again in December 2012. In the meantime, it looks like we will have a very happy new year (at least from a tax perspective).